Question: You are conducting an audit of the financial statements of

You are conducting an audit of the financial statements of a wholesale cosmetics distributor with an inventory consisting of thousands of individual items. The distributor keeps its inventory in its own distribution centre and in two public warehouses. A perpetual inventory database is maintained on a computer system and is updated at the end of each business day. Each individual record of the perpetual inventory database contains the following data:
• Item number
• Location of item
• Description of item
• Quantity on hand
• Cost per item
• Date of last purchase
• Date of last sale
• Quantity sold during year
You are planning to observe the distributor’s physical count of inventories as of a given date. You will have available a computer file, provided by the auditee, of the above items taken from their database as of the date of the physical count. Your firm has a generalized audit software package that can upload and analyze the auditee’s computer data files.

List the basic inventory auditing procedures and, for each, describe how the use of the general-purpose audit software package and the perpetual inventory database might be helpful to the auditor in performing such auditing procedures. Organize your answer asfollows:

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