Textile Wholesalers

Your firm is the auditor of Textile Wholesalers Ltd which buys textile products $($eg clothing$)$ from manufacturers and sells them to retailers. You attended the inventory count at the company's year$-$end of Thursday $31$ October $20$X$6.$ The company does not maintain book inventory records, and previous years' audits have revealed problems

with purchases cut$-$off. Your audit procedures on purchases cut$-$off, which started from the goods received note $($GRN$),$ have revealed the

following results:

Assume that goods received before the year$-$end are in inventories at the year$-$end, and goods received after the year$-$end are not in inventories at the year$-$end.

A purchase accrual is included in payables at the year$-$end for goods received before the year$-$end when the purchase invoice has not been posted to the trade payables ledger before the year$-$end.

Required

$($a$)$ At the inventory count:

$($i$)$ Describe the procedures the company's staff should carry out to ensure that inventories are counted accurately and cut$-$off details are recorded

$($ii$)$ Describe the procedures you could carry out and the matters you would record in your working papers.

$($b$)$ Briefly explain why cut$-$off is an important issue in the audit of inventory.

$(4$ marks$)$

$($c$)$ From the results of your purchases cut$-$off test, described in the question:

$($i$)$ Identify the cut$-$off errors and produce a schedule of the adjustments which should be made to the reported profit, purchases and payables in the financial statements to correct the errors

$(5$ marks$)$

$($ii$)$ Comment on the results of your test, and state what further action you would take.

$(4$ marks$)$

$($d$)$ Where a company uses a perpetual inventory counting system, describe the audit work that auditors would carry out to satisfy themselves that inventory was fairly stated.

$(5$ marks$)$

$($Total $=30$ marks$)$