Auditing Accounting

Green, CPA, is completing audit procedures for the December 31 year 4 audits at JBU Co., a nonissuer. An auditor from Green attended the physical inventory obeservation at year end. JBU Co. maintains a perpetual inventory system that is integrated with its general ledger. The auditor noted some issues that require further investigation while reviewing JBUs inventory count sheets and warehouse lacation maps. The auditor established the following information relating to the inventory count and product lines of the JBU.

There was not product movement on the day of the count The loading dock is part of warehouse A for the purposes of the count All product lines within each storage area have been identified on the warehouse maps The warehouse map is reflectieve of the warehouse on the day of the count Inventory values in the perpetual inventory listing are based on the most recent purchase price Materiality for the year end audit is 8000 Performance materiality is 5000

Email for the controller Auditor, please see my response to your question inline below. Also, it should be noted that on closer look, there is an issue with physical counts of the 5mm widgets. The perpetual records are correct. This has been validated by your associate. Lastly, it looks like the perpetual inventory listing includes 750 units of SKU 267-1 that should have been moved out of the perpetual inventory system and onto the consigned inventory account. Thanks Controller

Email from Auditor Hi, Can you please tell me whetther the items in the returns area have been included in the count? (Controller) Yes, the counts are correct and returns have been included in the counts. However, they would not yet have been processed in the perpetual invenoty system. Thanks Auditor,

Supplier Report Widget- Wiz Co SKU 267-3 On September 25 year 4 JBU acquired 100 units of SKU 267-3 with a unit price of 7.99. Subsequent to this acquisition, JBU sold a total of 25 units of 267-3 to third parties for $11.99, and utilized 70 units of the product in the manufacture of equipment being held for sale in warehouse C.

SKU 267-5 The company has not made a purchase of SKU-267-5 subsequent to February year 3. In prior years, JBU had a regular customer for this product line during year 3. This customer became insolvent.

SKU 267-1 In March, year 4, JBU purchased 5,000 units of sku 267-1. Half of the units were used in the manufacture of equipment that has subsequently been sold. A further 30% of the units were sold to third parties during year 4 and 5% of the units are in ending inventory. The remaining 15% of the units were provided to a customer on a consignment basis on December 31, year 4 these units were sold by the customer on January 3 year 5.

SKU-267-4 In December year 3 the company acquired 10,000 units of SKU 267-4 at a price of $1.56 per unit. During year 4, the company sold 5898 units of the product of third parties. The last sale was made in November year 4, with shipment that same month.

Warehouse Map

Warehouse A Warehouse B

Hex Bolts (561-3) Bolts- inch (490-2) Bolts- inch (490-2) Widgets -10mm (267-1)

Flex Washers (671-0) Hex Bolts (561-3) Widgets-20mm (267-3) Flat washers (671-0)

Widgets-10mm (267-1) Copper coil (290-1) Wrenches (583-5)

Loading docks Returns area

Large Plates (352-2) Copper Coil (290-1) Hex Bolts (561-3)

Inventory Count Sheets

Warehouse A

267-4	4098
490-2	541
267-3	--
561-3	7975
290-1	121
583-5	--
671-0	2683
267-1	131
352-2	--

Ware House B

267-4	--
490-2	491
267-3	5
561-3	1950
290-1	800
583-5	110
671-0	10188
267-1	119
352-2	136

Perpetual inventory list

PRODUCT	SKU	LAST PURCHASEDATE	LAST PURCHSED ITEM COST	ITEM COST	INVENTORYVALUE
WRENCHES	583-5-	6-3-YR4	12.78	150	1917.00
WIDGETS-10MM	267-1	3-8-YR4	4.99	1000	4,990.00
BOLTS-3/4IN	490-2	1-1-YR1	3.28	1032	3,384.96
FLAT WASHERS	671-0	12-26-YR4	2.60	12,871	33,464.60
WIDGETS20MM	267-3	9-25-YR4	7.99	5	39.95
HEX BOLTS	561-3	9-30-YR4	12.89	9875	127,288.75
WIDGETS15MM	267-5	2-7-YR3	6.78	--	--
WIDGETS 5MM	267-4	12-28-YR3	1.56	4102	6,399.12
COPPER COIL	290-1	10-15-YR4	3.77	9.21	3,472.17
LARGE PLATES	352-2	4-16-Y4	10.89	156	1,698.84
					182655.39

Based on the work performed above, form a conclusion on the ending inventory balance. Assume that the auditor performed any follow-up procedures to confirm the initial reasons for the differences identified and therefore any adjustments required are accurate and there are no other adjustments to consider other than those above.

Product Line Adjustment if any Justification for Adjustment

Widgets0-10mm

Widgets-5mm

Hex Bolts