Question 3 - Inventory You have been assigned the inventory observation procedure for the Lo-Hi Supermarket chain. There are multiple stores being counted on the night of December 31, 2017, and you and eight other members of your audit team are performing simultaneous observations at different unannounced locations. You have arrived on that night with the assignment of (1) making independent tests of the physical count; (2) making inquiries of client personnel about counting procedures and (3) observing the client counting procedures When you arrive you quickly locate the manager overseeing the count and request from him a count sheet that is being used by one of the client's ten counters. The count manger is at the front of the store with a portable computer and portable printer. The counters are using electronic instruments to input the counts, which are then uploaded into the computer as the count progresses. Count procedures indicate that each section will be counted twice by different counters; for multiple small items all items are to be removed from the shelf and placed back on the shelf when counting is done; once the section is counted the section is marked with a tag and the count is brought to the front to upload into the computer. You request a section of the store that has already been counted and are provided with a printout, as shown below. Assignment number one: Making independent tests of the physical count. Your first task is to recount the items found by the counter. Also, you have been asked by your manager to select several items from the shelf and test that count to the sheet provided by the client. You select 5 to count floor to sheet and 5 to count sheet to floor. Your findings are as follows (all items are from Aisle 10, Row 4 and Section 134) Item Auditor count Price Quantity per inventory Client count Auditor count sheet to floor floor to sheet records Preserved string beans 201.25 40 40 Preserved corn 201.35 32 32 32 Preserved peas 201.15 66 67 67 Preserved cut beans 201.25 80 80 79 Preserved whole beans 201.25 51 50 50 Preserved tomatoes 201.00 48 46 46 65 Canned diced tomatoes - zesty 201.10 52 52 60 Canned diced tomatoes - regular 201.10 41 40 41 Canned stewed tomatoes 201.30 46 45 45 Canned tomato sauce 201.99 40 40 Canned tomato sauce - spicy 200.89 42 42 44 Canned tomato paste 200.89 71 70 82 Canned tomato paste - spicy 200.89 80 80 Assignment number two: Making inquiries of personnel about counting procedures. After you recount several items, you approach several of the counters and discuss procedures with them. All the counters seem to have the proper understanding of the count procedures as it has been explained to you by the Count Manager. Assignment number three: Observing the clients counting procedures. Once you observe the count procedure, you notice that several counters are working together to count the same items as the same time. Also, some counters don't appear to be moving small items from the shelf to count the items behind the front items. 5 Semester II 2017/2018 Question 3-Inventory continued Required a) As the auditor, state the appropriate follow up action for the counts observed in the chart above? (9 marks) b) What, if any, follow up is necessary on Assignment two? (1 marks) c) What could result from the exceptions identified during Assignment three? What action would you take? (6 marks) d) Which is more important, that the physical counts are absolutely correct, or that the count is being conducted in accordance with the client procedures? Why? (2 marks) e) Which procedures in Assignment one tests for existence and which for completeness? Which is typically more important in an audit of the inventory cycle? (2 marks)