Inventory Process Narratives 1. Procurement of raw materials The procurement team sends purchase orders to approved suppliers for necessary raw materials such as fabric, insulation materials, buttons, zippers, and other accessories. The team maintains a detailed record of these purchase orders and regularly communicates with suppliers to help ensure timely delivery. 2. Reception of raw materials Upon arrival of the raw materials, the warehouse team inspects and verifies the quality and quantity of the received goods against the purchase orders. The team records any discrepancies and reports them to the procurement team. Once the raw materials are inspected and approved, they are stored in designated areas within the warehouse. 3. Production and work-in-progress The production team receives job orders and works accordingly to manufacture winter hats, gloves, and coats using the raw materials. Throughout the production process, the work-in-progress (WIP) inventory is tracked and monitored to help ensure efficiency and proper resource allocation. 4. Finished goods inventory Upon completion, the finished products undergo a quality inspection and then are labeled and stored in the warehouse's designated area for finished goods. The warehouse team updates the inventory records to reflect the addition of the finished goods, adjusting the WIP inventory accordingly. 5. Sales and order processing The sales team processes customer orders and communicates with the warehouse team to prepare and pick the required items for shipment. Once the orders are shipped, the sales team generates an invoice and forwards a copy to the accounting department. 6. Inventory valuation and financial reporting The accounting team is responsible for maintaining accurate inventory records and valuing the inventory using a consistent method, such as first-in-first-out or weighted average. The inventory valuation is incorporated into the company's financial statements, adhering to US generally accepted accounting principles and Financial Accounting Standards Board requirements. 7. Periodic inventory counts and reconciliation Keepin' You Warm performs periodic inventory counts, such as cycle counts or annual physical counts, to verify the accuracy of inventory records. Any discrepancies are investigated, and appropriate adjustments are made to the inventory records, helping ensure alignment with the physical inventory count. 8. Obsolete and slow-moving inventory management The company regularly reviews its inventory to identify slow-moving or obsolete items. Management devises strategies for managing such inventory, including promoting sales, offering discounts, or disposing of the items as needed. This helps ensure that inventory remains relevant and contributes to the company's profitability Example: X. Sub-process -Control 1 ... - Control 2 ... 1. Procurement of Raw Materials - Approved supplier list to ensure purchases are made from reliable sources. - Segregation of duties between those who create, authorize, and record purchase orders. 2. Receiving of Raw Materials - Independent verification of quality and quantity of received goods against purchase orders - Proper storage of raw materials in designated areas within the warehouse. 3. Production and Work-in-Progress - Standardized job orders to guide the production process. - Monitoring and tracking of WIP inventory to ensure production efficiency. 4. Finished Goods Inventory - Quality inspection of finished goods before adding them to inventory. - Accurate labeling and storage of finished goods in designated areas. 5. Sales and Order Processing - Authorization and review of customer orders before processing. - Confirmation of shipped orders and issuance of invoices. 6. Inventory Valuation and Financial Reporting - Consistent application of inventory valuation method (e.g., FIFO or weighted average). - Reconciliation of inventory records to general ledger. 7. Periodic Inventory Counts and Reconciliation - Independent personnel conducting inventory counts to ensure accuracy. - Investigation of discrepancies and adjustments to inventory records, as necessary. 8. Obsolete and Slow-Moving Inventory Management - Regular review and identification of slow-moving or obsolete inventory. - Approval of strategies for managing slow-moving or obsolete inventory. Files needed for input: o #2 Inventory Process Narrative.docx e #3 Inventory Control Listing.xlsx IMPORTANT: So far, we have reiterated that sensitive client information is not to be uploaded to public instances of Al technology platforms. This may seem counterintuitive when we are uploading client business processes in this portion of the case. However, it is important to point out that most audit firms have their own proprietary Al technology that is internally confined and monitored, allowing employees to ask more client-specific questions (subject to audit engagement letter allowable data use considerations). These are not to be posted to public instances. As the tool does not have specific information about account balances, risk of material misstatements, industry factors, the client's business environment, nor other risk and fraud factors, including those external to the company (i.e., industry-specific), auditors must exercise their professional judgment to determine the appropriate procedures. Requirements (total 100): Please consider the following hypothetical situation: your engagement team was recently engaged to conduct the audit of a national manufacturing company, Keeping You Warm, LLC, that designs and manufactures cold-weather accessories including wool hats, gloves, and socks. You are an audit associate assigned to the inventory process for this year's audit. You have just completed walk-through meetings with the client and are currently working through the initial risk assessment of the inventory process. Read through the Inventory Process Narrative.docx supplemental file received from the company's key inventory contact. 1) [30 points] Use the company's inventory process narrative in the LLM, along with the current list of inventory controls in place (Inventory Control Listing.xlsx). Where are there potential gaps identified in controls? Identify additional controls that can be added to each step of the process. Please list the LLM's response below (10 points) and comment on the proposed controls. In your opinion, which are critical for the company to add (20 pints)? 2) [30 points] Based on the company's current process narrative and controls already in place (not including the suggested controls in your response to #3), have the tool provide an initial risk assessment of the company's current-year inventory process in the aggregate (not separated by subprocess) (10 points). Use your professional judgment to comment on any oversights within the tool's response (20 points). 3) [15 points] As your team is finalizing its audit plan for the year, ask the LLM what substantive procedures it recommends performing over the various inventory account balances, given all the above information. What procedures does it recommend? 4) [15 points] Based on the recommended substantive procedures from the previous question, ask your LLM to generate an initial Prepared-by-Client (PBC) list to deliver to the client for interim and year-end procedures. A PBC list includes all of the various schedules, documents, or sample support needed in order to complete your audit procedures. 5) [10 points] Please complete the below survey: https