16-29 Computer-assisted substantive tests for inventory

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16-29 (Computer-assisted substantive tests for inventory) An auditor is conducting an audit of the financial statements of a wholesale cosmetics distributor with an inventory consisting of thousands of individual items. The distributor keeps its inventory in its own distribution center and two public warehouses. An inventory computer file is maintained on a computer disk and at the end of each day the file is updated. Each record of the inventory file contains the following data:

1. Item number
2. Location of item
3. Description of item
4. Quantity on hand
5. Cost per item
6. Date of last purchase
7. Date of last sale
8. Quantity sold during year

The auditor is planning to observe the distributor's physical count of inventories as of a given date. The auditor will have available a computer tape of the data on the inventory file on the date of the physical count and a general-purpose computer software package.

Required

The auditor is planning to perform inventory substantive tests. Identify the inventory tests and describe how use of the general-purpose software package and the tape of the inventory file data might be helpful to the auditor in performing such tests. (Hint: You may wish to refer to Chapter 12 as well as this chapter in answering this question.) Organize your answer as follows:

INVENTORY SUBSTANTIVE TEST
HOW GENERALIZED AUDIT SOFTWARE MIGHT BE HELPFUL FOR SUBSTANTIVE TESTS

1. Observe the physical count, making and recording test counts when applicable.
1. Determine which items are to be test counted by selecting a random sample of a representative number of items from the inventory file as of the date of the physical count.

Attached file(s):

16-29.doc  View File