choices would most likely represent a prudent course of action by the auditor? The auditor is most likely to simply disclaim an opinion on the client's inventory and any related accounts, as this area represents higher audit risk. ● The auditor may decide to audit the inventory accounts closer to the balance sheet date, and extend the extent of procedures performed on these accounts. O The auditor is likely to adopt a reliance on controls strategy, and perform less substantive procedures accordingly. O The auditor is likely to perform procedures on these accounts closer to the beginning of the audit, to allow more time to fix any problems uncovered.

choices would most likely represent a prudent course of action by the auditor? The auditor is most likely to simply disclaim an opinion on the client's inventory and any related accounts, as this area represents higher audit risk. ● The auditor may decide to audit the inventory accounts closer to the balance sheet date, and extend the extent of procedures performed on these accounts. O The auditor is likely to adopt a reliance on controls strategy, and perform less substantive procedures accordingly. O The auditor is likely to perform procedures on these accounts closer to the beginning of the audit, to allow more time to fix any problems uncovered.

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

Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle

Section: Chapter Questions

Problem 28RQSC

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Similar questions

The auditor has always received cooperation from a particularclient and has no reason to question management’s integrity. Thecontroller has requested that the auditor inform her about whichwarehouse locations that the auditor will visit during the upcominginventory count. In addition, the controller has requested copies of theauditor’s observations on the physical inventory because she wants tomake sure that a good inventory was taken. Should the auditor complywith these requests? State your rationale, including a discussion of professional skepticism.
An auditor is examining a nonpublic company’s inventory procurement system and has decided to perform tests of controls. Under which of the following conditions do GAAS require tests of controls be performed by an auditor?a. Significant weaknesses were found in the company’s internal control.b. The auditor hopes to reduce the amount of work to be done in assessing inherent risk.c. The auditor believes that testing the controls could lead to a reduction in overall audit time and cost.d. Tests of controls are always performed when the auditor begins to assess control risk.
During the taking of physical inventory, the controller intentionally withheld several inventory tags from the employees responsible for the physical count. After the auditor left the client’s premises at the completion of the inventory observation, the controller recorded nonexistent inventory on the tags and thereby significantly over-stated earnings. How could the auditor have uncovered the misstatement, assuming that there are no perpetual records?
During the taking of physical inventory, the controller intentionallywithheld several inventory tags from the employees responsible for the physical count.After the auditor left the client’s premises at the completion of the inventory observation,the controller recorded nonexistent inventory on the tags and thereby significantly overstated earnings. How could the auditor have uncovered the misstatement, assuming thatthere are no perpetual records?
As the auditor of Sample Limited you note the following matters relating to the internal control of its sales system. i) The sales department accepts order without first checking the inventory level with the warchouse, ii) Goods are dispatched to customers without recording customer's signatures as proof of receipt of goods. iii) Orders of goods placed by customers are properly recorded but they are not forwarded timely to the dispatch department for fulfilling the order. For each of the above deficiencies, identify the possible impact on the company's operation and recommend a control to address it. Explain why an auditor cannot perform only test of control in an audit.
a) Assume auditor has found that the clients inventory becomes obsolete very quickly. Will the auditor set inherent risk high or low? Also explain after setting the inherent risk what additional measures auditor can take regarding audit of inventory in this case. b) Materiality is a relative rather than absolute concept."- explain this statement with an example. c) Though preparing engagement letter is not mandatory for an auditor, audit firms prepare engagement letter. Why?
As the auditor of Sample Limited you note the following matters relating to the internal control of its sales system. i) The sales department accepts order without first checking the inventory level with the warehouse. ii) Goods are dispatched to customers without recording customer's signatures as proof of receipt of goods. iii) Orders of goods placed by customers are properly recorded but they are not forwarded timely to the dispatch department for fulfilling the order. a) For each of the above deficiencies, identify the possible impact on the company's operation and recommend a control to address it. b) Explain why an auditor cannot perform only test of control in an audit.