CAATs Application: Inventory. Your client, Boos & Becker Inc., is a medium- size manufacturer of products for the leisure- time activities market (camping equipment, scuba gear, bows and arrows, and the like). During the past year, a computer system was installed, and inventory records of finished goods and parts were converted to computerized processing. Each record of the inventory master file contains the following information:
Item or part number.
Quantity on hand.
Cost per unit.
Total value of inventory on hand at cost.
Date of last sale or usage.
Quantity used or sold this year.
Reorder point ( quantity).
Economic order quantity.
Code number of major vendor or code number of secondary vendor.
In preparation for year- end inventory, the client has two identical sets of preprinted inventory cards prepared from the master file. One set is for the client’s inventory counts and the other is for your use to make audit test counts. The following information has been included on the preprinted cards:
Item or part number.
Unit of measure code.
In taking the year- end count, the client’s personnel will write the actual counted quantity on the face of each card. When all counts are complete, the counted quantity will be pro-cessed against the master file, and quantity- on- hand figures will be adjusted to reflect the actual count. A computer list will be prepared to show any missing inventory count cards and all quantity adjustments of more than $ 100 in value. Client personnel will investigate these items and will make all required adjustments. When adjustments have been completed, the final year- end balances will be computed and posted to the general ledger.
Your firm has available an audit software package that will run on the client’s computer and can process both cards and disk master files.
a. In general and without regard to the preceding facts, discuss the nature of CAATs and list the various audit uses of such packages.
b. List and describe at least five ways CAATs can be used to assist in all aspects of the audit of the inventory of Boos & Becker Inc. ( For example, CAATs can be used to read the inventory master file and list items and parts with a high unit cost or total value. Such items can be included in the test counts to increase the dollar coverage of the audit verification.)