MEMORANDUM

To: All staff involved in the inventory count

From: Peter Lens

Date: $3$ February $2022$

Subject: Inventory count

$1.$ The inventory count will take place somewhere between $28$ and $31$ March $2022.$ As we expect to be very

busy at this time with the receipt and despatch of the new winter lines of eyewear, we will hope for a quieter

day to do the count.

$2.$ The following staff members from the accounting department should count the inventory in the identified

section of the warehouse:

Staff member Style category Section

John Zungula: fashion north section

Ian Zulu: sport west section

Mikel Mancoba: prescription south section

Rodgers Jojo: novelty east section

This memorandum will be my last official communication concerning the inventory count but if you wish to

discuss any aspect of the count, please see me$.$

Required:

$3\mathrm{.}1.$ Describe the audit procedures you will conduct when you attend the inventory count at the end of

Shareware Ltd$$s financial year?

$(10$ marks$)$

$3\mathrm{.}2\mathrm{.}1$ When the auditor selects a sample of items in the warehouse and traces them to the inventory count

sheets, is he$/$she testing for valuation, existence or completeness? Justify your answer?

$(2$ marks$)$

$3\mathrm{.}2\mathrm{.}2$ If the auditor$$s risk assessment procedures suggest that internal control in the inventor and production

cycle is weak, he$/$she will:

a$.$ increase his test of controls.

b$.$ increase his substantive tests.

c$.$ perform only analytical procedures.

Justify your choice and explain why you rejected the other options?

$(6$ marks$)$

$3\mathrm{.}2\mathrm{.}3$ To have a sound inventory internal control system, a company must have good internal controls in its

acquisitions cycle and its revenue cycle. True or false? Justify.