Don Martin, the in-charge auditor, is observing the year-end inventory procedures for Haverson Fabricated Buildings, Inc. Don notes the following issues when observing Haverson employees involved in this process:
Inventory tags are prenumbered and show the description and quantity of inventory. These tags are attached upon counting and only removed when authorized by the independent auditor. The tags are issued to two-person count teams and each number series issued is recorded by the plant supervisor on a control sheet.
All inventory, except work-in-process (considered minor), is housed in the central warehouse.
No provision is made by the client for double-checking the original inventory course.
Martin did not test-count one of the six finished goods bays, but did a walk-through with the supervisor and saw all goods tagged.
There were no auditor copies of the inventory tags, so Martin recorded all the test counts on inventory count sheets as part of the audit work papers.
At the end of the observation, Martin did not consider it realistic to account for all of the issued and unissued inventory tags, so he had the client furnish him with a copy of the control sheet maintained by the plant supervisor.

How effective were Martin’s inventory-count observation procedures? What specific warning signs in this scenario could result in possible overstatement of inventory?

  • CreatedJanuary 21, 2015
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