Question

You are the auditor from a CPA firm who each year audits a company called ABC Grocers, Inc. ABC Grocers, understandably, has a large amount of their assets tied up in Inventory. Some of their inventory is small such as candy at the check out counters, but some of it is rather large in size and dollar amount such as large amounts of meat that is waiting to be butchered. The inventory is susceptible to spoilage and theft.

During the second quarter of this fiscal year, ABC Grocers uncovered a scheme of employees' stealing produce and meats from the store and selling them at discount to friends and family. Based on their investigation these thefts had been going on for approximately two months before it was discovered.

Based on this information, evaluate which financial statement accounts are at risk of being misstated. Also, explain what you would do as the auditor to ensure that the Inventory account is valued properly and that all losses from the theft have been accounted for.

Answer 1