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Textile Wholesalers Your firm is the auditor of Textile Wholesalers Ltd which buys textile products ( eg clothing ) from manufacturers and sells them to
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 yearend of Thursday October X The company does not maintain book inventory records, and previous years' audits have revealed problems
with purchases cutoff. Your audit procedures on purchases cutoff, which started from the goods received note GRN have revealed the
following results:
Assume that goods received before the yearend are in inventories at the yearend, and goods received after the yearend are not in inventories at the yearend.
A purchase accrual is included in payables at the yearend for goods received before the yearend when the purchase invoice has not been posted to the trade payables ledger before the yearend.
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 cutoff 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 cutoff is an important issue in the audit of inventory.
marks
c From the results of your purchases cutoff test, described in the question:
i Identify the cutoff 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
marks
ii Comment on the results of your test, and state what further action you would take.
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.
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Total marks
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