Doughtie's Inc Auditing: Suspicious Inventory Turnover
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I'm struggling to understand and find a suitable solution for Q. 3 and Q. 4 of the Doughtie's Inc auditing case study (attached).
3. In 1981, Gravins' inventory turnover was approximately one-half that of comparable divisions within the firm. How should this fact have affected the planning for the 1981 audit of Doughtie's? What audit procedures should Wilson and Pollard have performed to investigate Gravins' unusually low inventory turnover rate?
4. Nashwinter was under considerable pressure to improve his division's operating results. Discuss how this fact, if known to the auditors of Doughtie's, should have affected their assessment of audit risk for this client.
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Solution Summary
Your response is 380 words (about a page) and explains the two kinds of risk that the auditor should have notice and two major audit procedures that should have been done. Further, it explains how the two risks should have impacted the planning stage.
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3. In 1981, Gravins' inventory turnover was approximately one-half that of comparable divisions within the firm. How should this fact have affected the planning for the 1981 audit of Doughtie's? What audit procedures should Wilson and Pollard have performed to investigate Gravins' unusually low inventory turnover rate?
When during the initial analytical review (during planning), a particular ratio is very different from expectations (in this case comparable divisions in the firm), that is a "risk signal." Of course, the size of inventory in this case (largest asset) would also have "flagged" that account as deserving of greater scrutiny than ordinary.
How should this have impacted the audit plan? The auditor should increase ...
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