Ace Corporation does not conduct a complete annual physical count of purchased parts and supplies in its principal warehouse; instead, it uses statistical sampling to test the accuracy of the perpetual records. Ace believes that statistical sampling is highly effective in testing the records and is sufficiently reliable to make a physical count of each item of inventory unnecessary.

Required

a. List at least 10 normal audit procedures that should be performed to verify physical quantities when a client conducts a periodic physical count of its entire inventory.

b. Is it acceptable to take a statistical sample to test the perpetual records rather than take a complete physical count of inventory? If it is acceptable, identify the key factors the auditor should consider in determining the acceptability of such a procedure.

c. Identify the audit procedures either different from, or in addition to, normal required audit procedures that should be use in the situation just described (when a client employs statistical sampling to test the perpetual records and does not conduct a 100% annual physical count of inventory items).

d. Assume the client uses FIFO for inventory valuation and has verified the accuracy of the perpetual inventory counts. What procedures should the auditor use to verify the accuracy of the cost of the inventory?