Construction Supplies Company (CSC) has been an audit client of your firm for several years. CSC has a March 31 fiscal year end. The company is a successful distributor of construction products. The company sells to businesses only (not to end-consumers), with clients ranging from small contractors to large developments. The company has a perpetual inventory system but the current inventory system relies upon accurate data entry of receipts, shipments, and inventory adjustments from paper documents.

CSC is looking to improve inventory management and maintain costs in the face of rising competition and growth. Accordingly, it is implementing RFID (radio frequency identification) technology for its inventory. RFID chips will be placed on warehouse shelf locations, boxes of products, and on high-cost individual products. At the same time, the company will implement a wireless mesh system throughout the warehouse, with wireless tracking of product movement. Effective January 31 of next year, a new inventory management system will be implemented to facilitate better decision making and access to online real-time inventory data. The new inventory management system will include a new database that will include internal records of inventory on hand, receipts and shipments of inventory, purchase order details, and payment details.

Required:

A) For each phase of the financial statement audit process, describe the phase, and explain how the audit process will be altered by the implementation of the new inventory management system. Complete table below. (18marks)

B) What is the impact of the implementation of RFID on the financial statement audit process? Note that these points must be different from those raised in requirement A. (6marks)

Audit phase and description

How the audit process is affected or changed due to the implementation of the new inventory management system

1. Preplanning

2. Client risk profile

3. Plan the audit

4. Design further audit procedures

5. Tests of control

6. Substantive tests

7. Ongoing evaluation

8. Complete quality control and issue the auditor's report