a. Gather information: What inventory items would you expect to see in MSIs accounts? How would the

a. Gather information: What inventory items would you expect to see in MSIʼs accounts? How would the cost of each item be calculated?

b. Analysis: Suggest substantive procedures for each account balance assertion that you would use in the audit of inventory for MSI.

c. Analysis: What are the implications, if any, of the new inventory costing system for planned uses of audit data analytics as a substantive test?

Mobile Security, Inc. (MSI) has been an audit client of Leo & Lee, LLP for the past 12 years. MSI is a small, publicly traded aviation company based in Cleveland, Ohio, where it manufactures hightech unmanned aerial vehicles (UAV), also known as drones, and other surveillance and security equipment. MSIʼs products are primarily used by the military and scientific research institutions, but there is growing demand for UAVs for commercial and recreational use. MSI must go through an extensive bidding process for large government contracts. Because of the sensitive nature of government contracts and military product designs, both the facilities and records of MSI must be highly secured.

In October 2022, MSI installed a new cloud-based inventory costing system to replace a system that had been developed in-house. The old system could no longer keep up with the complex and detailed manufacturing costing process that provides information to support competitive bidding. MSIʼs IT department, together with the consultants from the software company, implemented the new inventory costing system which went live on December 1, 2022. Key operational staff and the internal audit team from MSI were significantly engaged in the selection, testing, training, and implementation stages.