ACE Corporation does not conduct a complete annual physical count of purchased parts and supplies in its principal warehouse but instead uses statistical sampling to estimate the year end inventory. ACE maintains a perpetual inventory record of parts and supplies. Management believes that statistical sampling is highly effective in determining inventory values and is sufficiently reliable so a physical count of each item or inventory is unnecessary.

a. Define the difference between 1. Physical inventory 2. Perpetual inventory 3. Periodic inventory. b. List a variety of normal audit procedures that should be performed to verify physical quantities whenever a client conducts a periodic physical count of all or part of its inventory. c. Thinking about where you work (or have worked), what plausible inventory frauds do you think could occur? Describe the process and any missing or inadequate controls in detail