ACE Distribution Pty Ltd is an Australian company engaged in the distribution of glassware products to the Australian market. The company normally carries some 500 different products, acquired both locally and overseas. During the year, ACE acquires a new IT system. The main objective is to maintain computerised stock records. For this purpose, the company purchases a stock software package called SAMP (Stock Accounting Master Package).

Basically, SAMP maintains two files for the stock system, these being:

1. The stock master file

2. The stock transaction history file.

The record layouts for these files are shown in Exhibits 1 and 2, respectively. In essence, the stock master file is updated for each stock movement on a real-time basis. Stock movements (in quantity only) are then recorded in the transaction history file, each movement being specified by a record identifier as to whether it is a sale, purchase or adjustment (these being the only permissible movements allowed by SAMP).

In keeping with its policy of informing the external auditors of all new computerised accounting systems, the management of ACE notifies your audit manager of the proposed implementation of SAMP. The audit manager's preliminary review indicates that SAMP will affect previous audit procedures adopted in the calculation of the cost of goods sold for individual stock items. In previous years, the client had been able to provide detailed manual calculations to support the FIFO method of costing adopted for stock. Under SAMP, a weighted-average cost of goods is calculated and updated for each stock movement automatically by the computer. No audit trail is printed detailing how the weightedaverage cost is updated.

In previous years' audits of stock, difficulty has been encountered in the following areas:

1. Determining stock cutoffs

2. Identifying slow-moving stock

3. Identifying high-value stock items.

In these three areas, the audit manager's review indicates that SAMP may offer some assistance.

REQUIRED

As audit senior on the engagement, the audit manager asks you to draft a memorandum to him and the engagement partner detailing:

a. The feasibility of using computer-assisted audit techniques to overcome the audit problem he has identified in respect of the calculation of the weighted-average cost. The memo is to be structured so as to identify the problem and give a brief outline of three possible CAATs, together with an appraisal of the relative advantages and disadvantages of each proposed solution

b. The possibility of using audit software to assist in the audit of stock cutoffs, slow-moving stock and high-value stock. For each audit issue, a schedule, as shown in Exhibit 3, is to be completed and attached to the memo.

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Exhibit 1 File layout: Stock master File name: STMSTR File label: MFST010 Record size: 80 Block size: Format Fixed length records Description 800 From To Length Decimals Type* A )SM Identifier Stock no. Description Weighted-average cost Opening month's stock Purchases Sales Adjustments Closing month's stock Sales price Date of last movement Filler 20 28 35 42 49 56 27 34 41 48 P )Units 0 69 73 79 80 70 74 80 4 6 N ) DDMMYY Exhibit 2 File layout: Stock transaction history File name STTRN File label: TFSTO20 Record size: 35 Block size: 350 Format Fixed length records Description From To Length Decimals Type* Identifier Movements A )P purchase ) S -sale )A adjustment Transaction no. Stock no. Quantity Cost Date 4 10 15 16 23 30 29 35 2 P 0 N DDMMYY Exhibit 3 Client Nature of program File to be assessed: Stock/Debtors/Payroll/Creditors/Other (indicate which) NAME LABEL Brief description of Program objective: Fields to be accessed: Sample layout of output report required