Integrated Audit Practice Case

SEVENTH EDITION Armond

Assignment NINE

Discussion Questions

1.Oceanview's inventory consists primarily of boats and involves a comparatively small

number of inventory items. How would inventory observation and test count tracing

tests differ if the client has a large number of inventory items and the client did not have

a detailed list of inventory on hand at the time of the inventory observation?

2.Because of the nature of Oceanview's inventory, pricing is done using the specific

identification method. How would the pricing tests differ if the inventory consisted of a

large number of items for each product?

3.Oceanview identified some potentially obsolete inventory items. What tests should the

auditor perform to identify inventory that is obsolete or inventory that should be reduced

from historical cost to net realizable value?

4.The client received a large shipment of inventory on December 31 during the inventory

observation. What procedures should the auditor perform to verify that the acquisition

of inventory is properly accounted for?

5.Suppose, while performing analytical procedures, you discover uncollectible sales of repair parts have increased significantly from previous years. Although this increase could be due to several factors, explain why this might indicate that one or more employees are

stealing repair parts from Oceanview.

6.In addition to boats, Oceanview Marine Company's inventory consists of repair parts

and supplies, which are susceptible to theft by employees and customers. Describe some

internal controls that Oceanview Marine Company should use to prevent and/or detect

theft of repair parts and supplies.