Your client is PM Limited (PM), whose main business is maintaining commercial aircraft.

PM has contracts with several major airlines to carry out maintenance exclusively on their planes when they are in the UK.

Stock items range from screws and wire to more expensive items such as panelling and electronic components. Due to the value of some of the larger items, PM keeps stock levels to a minimum.

The majority of stock is held at the company’s warehouse near Heathrow airport.

This is the first year your firm has performed the audit of PM. Your review of the predecessor auditor’s working papers revealed that problems with cut-off were experienced regularly.

No other problems were noted in the working papers.

Your firm’s standard audit programme for stock is as described opposite:

Required

(a) For each of the audit steps identified in the audit programme, identify the audit assertion(s) it addresses.

(b) What procedures would you add, amend or delete on your firm’s standard audit programme for this client?

(c) Could analytical review tests replace all of the tests of details of balances and tests of details of transactions for this part of the audit? Why or why not?

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STANDARD AUDIT PROGRAMME FOR STOCKS Stock-take procedures 1. Attend the year-end stock-take and perform the following: 1.1 Ensure the stock-take is carried out in accordance with client instructions, and that the instructions are reasonable. 1.2 Tour the warehouse and check to ensure all locations are included in the count. 1.3 Ensure no movement of stock occurs during the count. 1.4 Select a random sample of stock items from the floor, and agree to count sheets. 1.5 Select a random sample of stock items from the count sheets and agree to physical stock. 1.6 Enquire as to how obsolete or damaged stock is identified and ensure these procedures are followed. 1.7 Record details of any apparently obsolete stock for later use in auditing the provision for obsolescence. 1.8 Check cut-off by obtaining details of the last sale pre-stock-take and the first sale post-stock-take. Agree to general ledger. Reperform procedure for goods inwards. 1.9 Copy a sample of stock sheets for later agreement to final stock listing. 2. Obtain final inventory listing and then do the following: 3. 2.1 Check adds, cross-adds and calculations. 2.2 Agree items from stock-take to listing, ensuring any adjustments are correctly processed. 2.3 Agree balance to general ledger. Select a sample of items from the final stock listing and ensure they are valued at the lower of cost and net realisable value.