An auditor is conducting an examination 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 in two public warehouses. An inventory computer file is maintained on a computer disk, and at the end of each business day, the file is updated. Each record of the inventory file contains the following data:

Item number

Location of item

Description of item

Quantity on hand

Cost per item

Date of last purchase

Date of last sale

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 basic inventory auditing procedures. Identify the basic inventory auditing procedures and describe how using the general- purpose software package and the tape of the inventory file data might be helpful to the auditor in performing such auditing procedures. Organize your answer as follows:

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How General-Purpose Computer Software Package and Tape of the Inventory File Data Might Be Helpful Basic Inventory Auditing Procedure 1. Observe the physical count, making and Determine which items are to be test counted by recording test counts where applicable. selecting a random sample of a representative number of items from the inventory file as of the date of the physical counts.