Carl Applewhite has been the auditor for a number of years of Reardon Ltd., a large merchandising concern which carries over 50,000 different items in inventory. During the current fiscal year the company has completed the installation of a sophisticated computer system for inventory control. The computer system utilizes magnetic disks which facilitate random-access processing. All pertinent data relating to individual items of inventory are carried on the magnetic disks. The system is equipped with 15 remote inquiry terminals, distributed at various locations throughout the operations. Using these terminals, employees can inquire into the computer system by using a keyboard which forms part of the remote terminal. The answer is relayed back instantaneously on the same terminal. The inventory records on the disks are updated via the remote terminals as stock movements occur.

1. Describe the effect of the new computer system on Applewhite's present audit approach, which was developed for use with the previous manual system.

2. What steps would Applewhite take before developing new audit procedures for the computerized inventory control system?