Question

3. You have determined that the following objectives will be part of your audit of inventory for Graham, Inc. For each of the objectives, identify one substantive procedure from the following list that would achieve that objective.

Substantive Procedures:

1. Examine current vendors’ price lists.
2. Review drafts of the financial statements.
3. Select a sample of items during the physical inventory count and determine that they have been included on count sheets.
4. Select a sample of recorded items and examine supporting vendors’ invoices and contracts.
5. Select a sample of recorded items on count sheets during the physical inventory count and determine that items are on hand.

1. Establish the completeness of inventories.
2. Establish the accuracy of cost amounts of inventories.
3. Determine that the presentation and disclosure of inventories and cost of goods sold is adequate.
4. Establish that the client has rights to the recorded inventories.
5. Establish the existence of ending inventory.

1._______

2._______

3._______

4._______
5._______

Answer 1

S. no.	Objective	Substantive procedure
1	Establish the completeness of inventories.	Select a sample of items during the physical inventory count and determine that they have been included on count sheets.
2	Establish the accuracy of cost amounts of inventories.	Examine current vendors’ price lists.
3	Determine that the presentation and disclosure of inventories and cost of goods sold is adequate.	Review drafts of the financial statements.
4	Establish that the client has rights to the recorded inventories.	Select a sample of recorded items and examine supporting vendors’ invoices and contracts.
5	Establish the existence of ending inventory.	Select a sample of recorded items on count sheets during the physical inventory count and determine that items are on hand.