Question 1

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Venus Ltd has a sophisticated inventory reporting system that tracks inventory movements throughout its distribution network. A 50% mark-up is automatically added to the costs of goods when they are shipped from the warehouse into retail stores. Inventory items held for more than six months are reported in order to determine if the items require markdown. Items identified for markdown must be authorised by the Financial Controller prior to being flagged in the system by entering code "M" next to the inventory number of a special entry screen. This automatically reduces the selling price of the item by 15%. A stocktake is planned to coincide with the financial year end. All counted inventory is documented on count sheets. Counted inventory totals are entered into the system to provide information of variations between counted and recorded inventory for subsequent investigations. Jughead Jones, the assurance services partner, is keen to introduce computer assisted auditing techniques (CAATs) to assist in the audit of the inventory related balances. Required: (a) Provide eight (8) examples of potential CAATs that could be used to assist with the audit of inventory balances of Venus Ltd. (8 marks) (b) Give four (4) reasons why you might not use CAATS. (4 marks)