Brown, CPA, is auditing the financial statements of big z wholesaling, inc., a continuing audit client, for

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Question:

Brown, CPA, is auditing the financial statements of big z wholesaling, inc., a continuing audit client, for the year ended January 31, 2007. On January 5, 2007, brown observed the tagging and counting of big Z’s physical inventory and made appropriate test counts. These test counts have been recorded on a computer file. As in prior years, big z gave brown two computer files. One file represents the perpetual inventory (first-in, first-out) records for the year ended January 31, 2007. The other file represents the January 5 physical inventory count.

Assume: 1. brown issued an unqualified opinion on the prior year’s financial statements.

2. All inventories is purchased for resale and located in a single warehouse.

3. Brown has appropriate computerized audit software.

4. The perpetual inventory file contains the following information in item number sequence: a. beginning balances at February 1, 2006: item number, item description, total quantity, and price’s. For each item purchased during the year: date received, receiving report number, vendor item number, item description, quantity, and total dollar amounts. For each item sold during the year: date shipped, invoice number, item number, item description, quantity, and dollar amounted. For each item adjusted for physical inventory count differences: date, item number, item description, quantity, and dollar amount.

5. The physical inventory file contains the following information in item number sequence: tag number, item number, item description, and count quantity.

Required:

Describe the substantive auditing procedures brown may consider performing with computerized audit software using big Z’s two computer files and brown’s computer file of test counts. The substantive auditing procedures described may indicate the reports to be printed out for brown’s follow-up by subsequent application of manual procedures. Do not describe subsequent manual auditing procedures. Group the procedures by those using (a) the perpetual inventory file and (b) the physical inventory and test count files.