Question 1: You are engaged on the audit of plastic pots Limited, a company manufacturing a range of plastic goods for sale to department stores. In prior years, the company has conducted a physical stock count at the year-end date only, but the chief accountant has told you that he wishes to introduce a system of continuous stock counts throughout the year and to dispense with the year-end count entirely. In future he wishes to determine stock quantities by reference to the stock records. You are informed that the principal raw material is a single grade of plastic pellets delivered in bulk; this material is kept in a bulk store. All waste material is re-usable. A complete range of finished goods kept in stock. Required:

State briefly what benefits are gained by management from a year end stock count. Why does the auditor observe such counts?

List the factors you would consider when advising the chief accountant of plastic pots Limited on his proposal that continuous stock counts replace the year-end count.

Assuming continuous stock counts are introduced by plastic pots, state with reasons:

The audit actions you would take to satisfy yourself that stock quantities have been properly determined.

What steps you would take should material differences exist between stock records and the quantities determined by continuous stock counts.