Question

Lily Window Glass Co. (Lily) is a glass manufacturer that operates from a large production facility, where it undertakes continuous production 24 hours a day, seven days a week. Also on this site are two warehouses where the company’s raw materials and finished goods are stored. Lily’s year end is December 31.

Lily is finalizing the arrangements for the year-end inventory count, which is to be undertaken on December 31, 2020. The finished windows are stored in 20 aisles of the first warehouse. The second warehouse is for large piles of raw materials, such as sand, used in the manufacture of glass. The following arrangements have been made for the inventory count.

The warehouse manager will supervise the count as he is most familiar with the inventory. There will be 10 teams of counters, and each team will contain two members of staff, one from finance and one from the manufacturing department. None of the warehouse staff, other than the manager, will be involved in the count.

Each team will count an aisle of finished goods by counting up and then down each aisle. As this process is systematic, it is not felt that the team will need to flag areas once counted. Once the team has finished counting an aisle, they will hand in their sheets and be given a set for another aisle of the warehouse. In addition to the above, to assist with the inventory counting, there will be two teams from the internal audit department who will perform inventory counts.

The count sheets are sequentially numbered, and the product codes and descriptions are printed on them, but quantities are not. If the counters identify any inventory that is not on their sheets, they are to enter the item on a separate sheet, which is not numbered. Once all counting is complete, the sequence of the sheets is checked and any additional sheets are also handed in. All sheets are completed in ink.

Any damaged goods identified by the counters will be too heavy to move to a central location; therefore, they are to be left where they are, but the counter is to make a note on the inventory sheet detailing the level of damage.

As Lily undertakes continuous production, there will continue to be movements of raw materials and finished goods in and out of the warehouse during the count. These will be kept to a minimum where possible.

The level of work in process in the manufacturing plant is to be assessed by the warehouse manager. It is likely that this will be an immaterial balance. In addition, the raw material quantities are to be approximated by measuring the height and width of the raw material piles. In the past this task has been undertaken by a specialist; however, the warehouse manager feels confident that he can perform this task.

Which of the following are deficiencies with the inventory count?

The warehouse manager will supervise the count as he is most familiar with the inventory.

There will be 10 teams of counters, and each team will contain two members of staff, one from finance and one from the manufacturing department.

The warehouse staff, other than the manager, will not be involved in the count as warehouse staff are not independent.

To assist with the inventory counting, there will be two teams from the internal audit department who will perform inventory counts.

The count sheets are sequentially numbered, and the product codes and descriptions are printed on them, but quantities are not.

Teams do not need to flag areas once counted.

If the counters identify any inventory that is not on their sheets, they are to enter the item on a separate sheet, which is not numbered.

  

  

Which of the following are the auditor’s responsibilities with respect to the inventory count?

Confirm that no raw materials or finished goods have been omitted or counted twice by observing the procedures for inventory movements during the count.

Photocopy the complete sequentially numbered inventory sheets.

Prepare the count instructions for the client.

Perform inventory test counts from floor to sheet to obtain evidence for completeness.

Identify and note the last receiving reports and shipping reports for December 31.

Perform inventory test counts from sheet to floor to obtain evidence for existence.

Ensure damaged goods are segregated.

Confirm whether the level of damage is correctly noted on the inventory sheets by selecting a sample of damaged windows as noted on the inventory sheets and inspecting them.

Confirm that any inventory held for third parties is excluded from the count by confirming and recording it.

Answer 1

А B 16 Which of the following are deficiencies with the inventory count? The warehouse Manager has an incentive to conceal The warehouse manager will supervise the count as he is most familiar with or fail to report any issues that could reflect badly 17 the inventory. upon him There will be 10 teams of counters, and each team will contain two members 18 of staff, one from finance and one from the manufacturing department. The warehouse staff, other than the manager, will not be involved in the 19 count as warehouse staff are not independent. To assist with the inventory counting, there will be two teams from the 20 internal audit department who will perform inventory counts. The count sheets are sequentially numbered, and the product codes and 21 descriptions are printed on them, but quantities are not. Areas counted will not beflagged. This could result in 22 Teams do not need to flag areas once counted. items being double counted or not counted at all If the counters identify any inventory that is not on their sheets, they are to 23 enter the item on a separate sheet, which is not numbered. 24 25 26 Which of the following are the auditor's responsibilities with respect to the inventory count? Select a sample and perform test counts from Confirm that no raw materials or finished goods have been omitted or inventory sheets to warehouse aisle and from counted twice by observing the procedures for inventory movements during warehouse aisle to inventory 27 the count sheets 28 Photocopy the complete sequentially numbered inventory sheets. 29 Prepare the count instructions for the client. 30 Perform inventory test counts from floor to sheet to obtain evidence for completeness. 31 Identify and note the last receiving reports and shipping reports for December 31. 32 Perform inventory test counts from sheet to floor to obtain evidence for existence. 33 Ensure damaged goods are segregated. Confirm whether the level of damage is correctly noted on the inventory sheets by selecting a sample of damaged windows as noted on the inventory 34 sheets and inspecting them. Confirm that any inventory held for third parties is excluded from the count by 35 confirming and recording it.