Described below are potential financial statement misstatements that are encountered by auditors in the audit of inventory and cost of

goods sold.

Required:

For each misstatement, identify the substantive auditing procedures that may be used by auditors to detect the misstatement.

a$.$ Management of a chain of discount department stores systematically overstates inventory quantities at selected locations.

Audit Procedures $1.$

Audit Procedures $2$

Observation of inventory at selected locations without prenotification of the locations selected.

Review of inventory turnover of selected inventory items.

Review of trends in sales returns.

Tests of the accumulation of manufacturing costs and assignment of costs to selected inventory items.

b$.$ Accounting personnel of a manufacturing company make computational errors that understate the production costs of certain inventory items.

Audit Procedure $1.$

Audit Procedure $2.$