Boss Ltd.

Observation of Inventory Count and Count Procedures Performed

(Prepared by CPA, associate)

Observation of Boss's Inventory Count on September 30, 2019

• Inventory ranges from inexpensive parts, such as nuts and bolts, to valuable items, such as motors. In addition to raw materials, inventory also includes completed tractors. There is no work in process.
• A manager, who deals with Boss's inventory on a daily basis, supervised the count; most of the counters were those office staff available at the time.
• There weren't any written count procedures, but the manager said he told each count team which area to count, and asked that one member of the team perform the count and that the other member re-count it before writing it down.
• Rather than marking which areas are counted, Boss uses the pre-numbered count sheets to ensure all inventory is counted.
• Each count team took a pre-numbered count sheet from the manager, recorded their counts on the count sheet, and then handed it back to the manager.
• When a difference was found between the count sheet and inventory records, a re-count was performed. In the cases where there was still a difference, the manager considered this an error, and investigated the difference prior to changing the inventory records.
• The counters counted all inventory on the shelves, no matter what condition it was in. I asked the owner of Boss about this, and found that the only time Boss writes off inventory is when it is taken off the shelves to be used, but is found to be damaged or obsolete. According to the owner of Boss, this does not happen very often.
• Shipments were received during the count, and one staff person was dedicated to receiving the shipments into the inventory system, and placing those items on the shelves.

Count Procedures Performed (Prepared by CPA, associate)

1. I inspected the inventory for items that looked old or damaged, and found the following:

a. Two engines that looked old, as they were dusty

b. Three boxes of nuts that were rusty

c. 10 sets of tires that were deflated

2. I performed test counts of the inventory. I selected a sample of 15 from the count sheets and traced them to the physical inventories on the shelf, and selected a sample of 15 from the physical inventories on the shelf and traced them to the count sheets. I found one error, in which the count sheet indicated that there were 290 gearboxes; when I counted, I found 250 gearboxes. When I informed the inventory manager of this difference, there was a re-count, and 250 was found to be the correct number. The inventory manager adjusted the amount in the system.

3. I obtained a copy of the final inventory listing and the count sheets.

Question

Identify at least five control deficiencies in the client's inventory count procedures along with implications and recommendations to improve