Your client, the Bambi Corporation, manufacturers baby carriages as its only product. The corporation maintains perpetual inventory records in quantities and values and also takes a complete physical inventory each October 31. You observed the physical inventory at October 31, 19X0 and were satisfied with the procedures followed. From your test counts you are satisfied that the client's counts were sub- stantially accurate. There were differences between the client's count and the perpetual records for about 75 percent of the items. Before adjusting the inventory records for the larger differences, of which there were about 25, the records were checked and the items were recounted. Typical examples of adjustments for the larger differences are

Bambi made no further physical tests of inventories during 19X0. For its year- end closing at December 31, 19X0, the corporation used inventory quantities shown by the perpetual inventory records. Prepare in outline form an audit program setting out the essential procedures to be followed in your audit of inventories as of December 31, 19X0. Do not include procedures unless you believe them to be essential under the conditions as stated. AICPA adapted

Transcribed Image Text:

Perpetual record before adjustment Perpetual record after adjustment Black paint (in gallons) 662 647 Cotter pins (in dozens) 2,260 2,160 Hub caps 8,592 8,703 Assembled wheels 6,901 6,883