Learning Goal: I’m working on a accounting report and need a sample draft to help me learn.
OPTION #1: INVENTORY OBSERVATION
You are scheduled to be present for the inventory observation of one of your manufacturing audit clients. During the observation, you noticed the following:
- Some of the employees who were counting the inventory stopped to load a truck for shipment.
- During test counts, you noticed that the expiration date of a large bin of items was two years old. When you questioned the client, the inventory manager told you that he/she felt the company could still sell the items.
- At the end of the day, a large shipment was received. It was not included in the count.
Prepare a report discussing the following:
- The procedures you should perform before going on-site for the inventory observation.
- Based on this preliminary review of the client’s inventory, you determine that there is a significant risk of material misstatement and/or fraud. Discuss what changes you will make to the normal observation process based on this information.
- The procedures you will take to address each of the issues noted during the observation.