You are the senior on the Archer Technologies, Inc. audit.  Archer has been an audit client for a number of years.  The company manufactures and assembles electronic components used in various industries.  The company has three plants located in two states.  The company's manufacturing operations include producing items patented by Archer as well as using other branded parts under licensing agreements.  

The company assembles the Archer manufactured parts along with purchased components to create the Archer product line.  Some components are end products, which are sold directly to distributors.  Other products are considered sub-components, which are sold to other electronics firms or assembled into products sold under the Archer brand. 

The company's inventory includes over 500 types of items.  The company's accounts had the following balances:

Raw Materials and Purchased Parts  $1,500,000

Work-in-Process  750,000

Finished Goods  2,300,000

You have obtained an understanding of the company, its environment, and internal control systems and have made the following risk assessments related to inventory:

Inherent Risk....................................... High

Control Risk........................................ Moderate

REQUIRED:

1. Identify what could go wrong in accounting for and reporting the inventory accounts; that is, what types of misstatements could occur - be specific.

2.  Identify the audit objectives related to inventory.  Be specific in your answers.

3.  List the types of audit evidence that would be appropriate for the inventory accounts and what might be audit procedures to obtain the evidence.

Answer rating: 100% (QA)

1 Misstatements in accounting for and reporting the inventory accounts can occur in several ways a Misclassification Inventory items may be incorrectly categorized as raw materials workinprocess or fi... View the full answer