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Option #1: Inventory Observation
You are scheduled to be present for the inventory observation of one of your manufacturing audit clients. During the observation, you noticed the following:
Some of the employees who were counting the inventory stopped to load a truck for shipment.
During test counts, you noticed that the expiration date of a large bin of items was two years old. When you questioned the client, the inventory manager told you that he/she felt the company could still sell the items.
At the end of the day, a large shipment was received. It was not included in the count.
- Prepare a report discussing the following:
- The procedures you should perform before going on-site for the inventory observation.
- Based on this preliminary review of the client’s inventory, you determine that there is a significant risk of material misstatement and/or fraud. Discuss what changes you will make to the normal observation process based on this information.
The procedures you will take to address each of the issues noted during the observation.