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

A) Inventory is understated because warehouse personnel overlooked several racks off parts in taking hte physical inventory

Error or Fraud: (error or fraud)

Control: (Matching of purchase invoices with receiving documents, maintenance of perpetual inventories, physical controls at warefhouse, development of adequate inventory taking procedures and adequate supervision of physical inventory)

Substantive Procedure: ( observation of inventory, vouching inventory purchases, calculating inventory turnover, performing a lower of cost or market test )

B) Inventory is overstated because warehouse personnel included inventory items received subsequent to year-end while recording the purchase in the subsequent year to hide inventory shortages

Error or Fraud: (error or fraud)

Control: (use of renumbered receiving reports and controls to insure adequate cut-off of purchases and payable, physical controls at warehouse, matching of purchases invoices with receiving documents, using renumbered sales invoices

Substantive Procedures: ( observation of inventory, vouching inventory purchases, calculating inventory turnover, performing a lower of cost or market test, vouching sales transactions)

C) Inventory is overstated because management instructed computer personnel to make changes in the file used to price inventories.

Error or Fraud: (error or fraud)

Controls: effective audit committee and internal audit department to monitor management's override of internal controls, physical controls at warehouse, maintenance of perpetual inventories, matching purchase invoices to receiving reports.

Substantive Procedures: calculating inventory turnover, vouching sales transactions, observe the physical inventory, price tests of a sample of inventory items.