You have been with Zaird & Associates for approximately three months and are completing your work on the BizCaz audit. BizCaz produces pullover knit shirts to address the business casual market for both men and women. Although your experience has been limited, an unexpected staff resignation has resulted in your working directly with the engagements in-charge senior on inventory. This has been a learning experience for you, because you have helped perform various tests of controls which may be summarized as indicating that internal control LO 12-1, 5, 6 Inventories and Cost of Goods Sold 545 1244. Western Trading Company is a sole proprietorship engaged in the grain brokerage business. On December 31, 20X0, the entire grain inventory of the company was stored in outside bonded warehouses. The companys procedure of pricing inventories in these warehouses includes comparing the actual cost of each commodity in inventory with the market price as reported for transactions on the commodity exchanges at December 31. A write-down is made on commodities in which cost is in excess of market. During the course of the 20X0 audit, the auditors verifi ed the companys computations. In addition to this, they compared the book value of the inventory with market prices at February 15, 20X1, the last day of fi eldwork. The auditors noted that the market prices of several of the commodities had declined sharply subsequent to year-end, until their market price was signifi cantly below the commodities book values. The inventory was repriced by the auditors on the basis of the new market prices, and the book value of the inventory was found to be in excess of market value on February 15 by approximately $21,000. The auditors proposed that the inventories be written down by $17,000 to this new market value, net of gains on the subsequent sales. The management protested this suggestion, stating that in their opinion the market decline was only temporary and that prices would recover in the near future. They refused to allow the write-down to be made. Accordingly, the auditors qualifi ed their audit opinion for a departure from generally accepted accounting principles. a. Were the auditors justifi ed in issuing a qualifi ed opinion in this situation? Discuss fully, including alternative courses of action. b. State your opinion as to the course of action that was appropriate in this situation. LO 12-1, 6 Required: over inventory (including the perpetual records) seems strong. It is your impression that those tests resulted in a decrease in substantive procedures, thereby allowing a particularly effi cient audit. At the beginning of the audit, Jan Wheeler, the in-charge senior, told you that the management team of BizCaz has always been helpful and friendly. Throughout the audit, you have found the situation to be as good as described. In fact, BizCaz allows each auditor to purchase up to three shirts at a particularly attractive price of $12 per shirt, the cost for which employees may purchase shirts. The shirts have a market value of around $50, although the direct labor and material costs of each shirt are only $10. Near the conclusion of the audit, after you and the other three staff members paid the controller and told him your sizes, he walked to the warehouse, removed 12 shirts from the appropriate piles, and brought them out. That evening you gave the situation some thought. On the one hand, the company didnt lose any money on your purchase of the shirtsbut on the other hand, you would never have been able to purchase such high-quality clothes for such a low price. 1. Is it acceptable to purchase these shirts from the audit client in this manner? 2. Discuss the effect of any information presented in the case on the adequacy of the audit.