The auditor determines that there may be misstatements in the inventory and cost of goods sold account. During the conduct of the audit, the auditor found a material weakness in internal controls in that (a) some shipments were recorded before the actual shipment took place (this happened throughout the year at a rate of 2 out of 30), (b) some shipping documents could not be found even though the shipment had been recorded (2 out of 30), and (c) some goods were received and sat on the shipping dock for up to 7 days before the receipt was recorded. This happened at a rate of 5 out of 30.

Required
a. For each of these deficiencies, indicate the potential misstatement affecting inventory.
b. Identify whether the potential misstatement of inventory identified above would be considered significant enough to require direct testing of inventory. State the rationale for your answer.
c. For each deficiency or potential misstatement, indicate how you might test to see whether inventory was misstated.
d. Assume that no deficiencies were found at all. How many direct tests of inventory would you recommend still be performed? Indicate the nature of those direct tests, if any.