According to your understanding as a financial auditor, can these conditions lead to material misstatements in the client’s financial statements? Explain your answer!
According to your understanding as a financial auditor, can these conditions lead to material misstatements in the client’s financial statements? Explain your answer!
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter1: Quality Auditing: Why It Matters
Section: Chapter Questions
Problem 38RQSC: As the auditor for XYZ Company, you discover that a material sale ($500,000 sale; cost of goods of...
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Question
You are a financial auditor from a CPA Firm. One day when You audit your client, you found
that your client has a weak security system for physical inventory. The client is an automotive
parts company with a lot of valuable part inventory. The lack of procedures for securing
inventory is shown from the evidence such as employees unrelated to inventory can enter the
inventory warehouse. The company also has inventory in subcontractors. Some parts are sent to
the subcontractor company, so there are many warehouses outside the main plant. Besides that,
the absence of a computerized system in recording incoming and outgoing inventory flows in a
subcontractor. Under these conditions, inventory theft is particularly vulnerable.
According to your understanding as a financial auditor, can these conditions lead to material
misstatements in the client’s financial statements? Explain your answer!
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