Dakota Drapers supplies custom-fitted curtains and blinds to retail customers. It has recently expanded to offer a wide variety of home decorating products through its six stores across the state. After some initial problems with inventory control, the client installed a new automated inventory system in April this year (the fiscal year end is December 31). The system replaced another automated system that had been modified so often over the years that the auditors had advised Dakota’s management that they did not regard it as reliable. That is, in the past, the auditors were unable to rely on the old system sufficiently to assess control risk for inventory as anything less than high.

Required

a. Explain the normal process an auditor would expect to find in the client’s system governing changes to software applications. Why is an auditor concerned about application changes?

b. Dakota Drapers’ fiscal year-end is December 31. Does the auditor need to obtain evidence about the performance of the inventory control system from every month in the year or from a sample of months? Explain.

c. If the auditor conducts tests of the inventory controls at an interim date, is it appropriate to conclude that the controls are effective up through the end of period date? Explain your reasoning.