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 Price Quantity per inventory records Client count Auditor count sheet to floor Auditor count floor to sheet 32 67 79 50 46 Preserved string beans Preserved corn Preserved peas Preserved cut beans Preserved whole beans Preserved tomatoes Canned diced tomatoes - zesty Canned diced tomatoes - regular Canned stewed tomatoes Canned tomato sauce Canned tomato sauce - spicy Canned tomato paste Canned tomato paste - spicy 201.25 201.35 201.15 201.25 201.25 201.00 201.10 201.10 201.30 201.99 200.89 200.89 200.89 40 32 66 80 51 48 52 41 46 40 42 71 80 40 32 67 80 50 46 52 40 45 40 42 70 80 60 41 45 44 82 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. Semester 11 2017/2018 5 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 com eteness? Which is typically more important in an audit of the inventory cycle? (2 marks) Question 5 - Audit Sampling You have conducted the audit on Accounts Receivable for Ski lipo Ltd. You are now evaluating the results of a non-statistical sample of 85 accounts receivable confirmation Information on the sample and population are included below. An overstatement or understatement of more than $250,000 is considered material. No. of Accounts Recorded Value 85 1, 17,598 Sample Population 797 8,658,935 The confirmation responses were received with the only exceptions as follows: Misstatement? Account No. Recorded Value Confirmation Response Auditor Follow-up 125 $ 29,296 $ 25,759 247 $194,912 $175,621 288 $8,654 $4,654 487 $17,443 0 Customer was charged the wron price $19,291 shipment recorded on 30 December; goods were not shipped until 3 January Customer sent $4,000 payment on 29 December, received on 2 Januar $17,443 shipment recorded on 30 December; goods were not shipped until 2 January Customer received less than the full quantity ordered. $21,936 shipment recorded on 30 December; goods were not shipped until 2 January $15,628 in shipment made 30 December; goods were received by the customer on 4 January (rights passes when goods shipped) 546 $9,739 $8,757 635 $42,768 $20,832 893 $15,628 0 Required a) Evaluate each of the auditor's follow up results above and determine whether each represents a misstatement. (7 marks) (Present answer as a able with columns for Acci #, Misstated Amount and Explanation for misstatement or not) b) Estimate the total amount of misstatement in the accounts receivable population (ignore sampling risk in the calculation) (8 marks) c) Explain whether the population is acceptable or not. (5 maris) 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 Price Quantity per inventory records Client count Auditor count sheet to floor Auditor count floor to sheet 32 67 79 50 46 Preserved string beans Preserved corn Preserved peas Preserved cut beans Preserved whole beans Preserved tomatoes Canned diced tomatoes - zesty Canned diced tomatoes - regular Canned stewed tomatoes Canned tomato sauce Canned tomato sauce - spicy Canned tomato paste Canned tomato paste - spicy 201.25 201.35 201.15 201.25 201.25 201.00 201.10 201.10 201.30 201.99 200.89 200.89 200.89 40 32 66 80 51 48 52 41 46 40 42 71 80 40 32 67 80 50 46 52 40 45 40 42 70 80 60 41 45 44 82 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. Semester 11 2017/2018 5 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 com eteness? Which is typically more important in an audit of the inventory cycle? (2 marks) Question 5 - Audit Sampling You have conducted the audit on Accounts Receivable for Ski lipo Ltd. You are now evaluating the results of a non-statistical sample of 85 accounts receivable confirmation Information on the sample and population are included below. An overstatement or understatement of more than $250,000 is considered material. No. of Accounts Recorded Value 85 1, 17,598 Sample Population 797 8,658,935 The confirmation responses were received with the only exceptions as follows: Misstatement? Account No. Recorded Value Confirmation Response Auditor Follow-up 125 $ 29,296 $ 25,759 247 $194,912 $175,621 288 $8,654 $4,654 487 $17,443 0 Customer was charged the wron price $19,291 shipment recorded on 30 December; goods were not shipped until 3 January Customer sent $4,000 payment on 29 December, received on 2 Januar $17,443 shipment recorded on 30 December; goods were not shipped until 2 January Customer received less than the full quantity ordered. $21,936 shipment recorded on 30 December; goods were not shipped until 2 January $15,628 in shipment made 30 December; goods were received by the customer on 4 January (rights passes when goods shipped) 546 $9,739 $8,757 635 $42,768 $20,832 893 $15,628 0 Required a) Evaluate each of the auditor's follow up results above and determine whether each represents a misstatement. (7 marks) (Present answer as a able with columns for Acci #, Misstated Amount and Explanation for misstatement or not) b) Estimate the total amount of misstatement in the accounts receivable population (ignore sampling risk in the calculation) (8 marks) c) Explain whether the population is acceptable or not. (5 maris)