7-29 - The following audit procedures were performed in the audit of INVENTORY to satisfy specific...

7-29 - The following audit procedures were performed in the audit of INVENTORY to satisfy specific balance-related audit objectives (management assertions). The audit procedures assume that the auditor has obtained the inventory count sheets that list the client’s inventory. The general balance-related audit objectives from Chapter 6 are also included.

Audit Procedures

Select a sample of inventory items in the factory warehouse and trace each item tothe inventory count sheets to determine if it has been included and if the quantityand description are correct.
Trace selected quantities from the inventory list to the physical inventory to makesure that it exists and the quantities are the same.
Compare the quantities on hand and unit prices on this year’s inventory countsheets with those in the preceding year as a test for large differences.
Test the extension of unit prices times quantity on the inventory list for a sampleof inventory items, test foot the list, and compare the total to the general ledger.
Send letters directly to third parties who hold the client’s inventory, and requestthat they respond directly to the auditors.
Examine sales invoices and contracts with customers to determine whether anygoods are out on consignment with customers. Similarly, examine vendors’ invoicesand contracts with vendors to determine whether any goods on the inventorylisting are owned by vendors.
Question operating personnel about the possibility of obsolete or slow-movinginventory.

Identify the type of audit evidence used for each audit procedure.
Identify the general balance-related audit objective or objectives (management assertion)satisfied by each auditprocedure.

AUDIT PROCEDURE	a. TYPE OF AUDIT EVIDENCE	b. BALANCE- RELATED AUDIT OBJECTIVE/ASSERTION
1. Select a sample of inventory items in the factory warehouse and trace each item to the inventory count sheets to determine if it has been included and if the quantity and description are correct.
2. Trace selected quantities from the inventory list to the physical inventory to make sure that it exists and the quantities are the same.
3. Compare the quantities on hand and unit prices on this year’s inventory count sheets with those in the preceding year as a test for large differences.
4. Test the extension of unit prices times quantity on the inventory list for a sample of items, test foot the list, and compare the total to the general ledger.
5. Send letters directly to third parties who hold the client’s inventory, and request they respond directly to the auditor.
6. Examine sales invoices and contracts with customers to determine whether any goods are out on consignment with customers. Examine vendors’ invoices and contracts with vendors to determine if any goods on the inventory listing are owned by vendors.
7. Question operating personnel about the possibility of obsolete or slow-moving inventory.

Solutions

Expert Solution

AUDIT PROCEDURE	a. TYPE OFAUDIT EVIDENCE	b. BALANCE-RELATEDAUDIT OBJECTIVE
1. Select a sample of inventory items in the factory warehouse and trace each item to the inventory count sheets to determine if it has been included and if the quantity and description are correct.	Physical examination	Completeness and Accuracy
2. Trace selected quantities from the inventory list to the physical inventory to make sure that it exists and the quantities are the same.	Physical examination	Existence andAccuracy
3. Compare the quantities on hand and unit prices on this year’s inventory count sheets with those in the preceding year as a test for large differences.	Analytical procedures	Accuracy
4. Test the extension of unit prices times quantity on the inventory list for a sample of items, test foot the list, and compare the total to the general ledger.	Recalculation	Detail tie in
5. Send letters directly to third parties who hold the client’s inventory, and request they respond directly to the auditor.	Confirmation	Existence, Completeness and Accuracy
6. Examine sales invoices and contracts with customers to determine whether any goods are out on consignment with customers. Examine vendors’ invoices and contracts with vendors to determine if any goods on the inventory listing are owned by vendors.	Inspection	Rights
7. Question operating personnel about the possibility of obsolete or slow-moving inventory.	Inquiry	Realizable value

ekkarill92 answered 10 months ago

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