You are the audit senior at Zhang Zi Zi Associates. Below are issues fixed by your audit

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Question:

You are the audit senior at Zhang Zi Zi Associates. Below are issues fixed by your audit teams:

1. Valentine Creativity is a bespoke designer label located throughout Chine. 40% of the inventory can be found in warehouses in Wuxi and Guangzhou. The rest of the inventory is found in all their 300 stores across China, Hongkong, and Macau. The high value consist of designer pearls can be found in Beijing, Hongkong, and Shanghai. Special strong vaults are built in those stores to keep the pearls.

2. Delia Computers practices the vendor managed inventory system with their vendors. Digital East, your client, is one of their hard disc suppliers for their Shenzhen plant. Your client will assemble the hard discs in Wuxi and ship the hard discs to Delia’s warehouse in Shenzhen. Delia will pull from the inventory in the Shenzhen warehouse if they need to use the discs and will pay for the pull.

3. Elektroniks is a contract manufacturer in Xiamen manufacturing one behalf of few Korean smartphone companies. Elektroniks makes smartphone touch screens. The screens are made exclusively for each customer and cannot be used interchangeable. Due to patent issues any excess stock and scrap material must be destroyed.

4. Bisco is an international hypermarket chain. They have just opened shop in China by taking over two local groceries chains. Laimaicai and Jiama. Bisco have yet to integrate the inventory systems used by Laimaicai and Jiama to a common platform.

Required:

a. For each mentioned above, describe issues the auditor should consider when determining which locations to visit physically observe the client’s inventory count.

b. How would you determine which locations your teams should visit?

c. How does the type of inventory held by your client pose potential risks of material misstatements in the inventory balances?

d. How might your teams address the risks noted in part c.