CHAPTER IV
AUDIT INVENTORY AND PURCHASES
Hypothetical Case in XYZ Company
A.
TYPICAL ERRORS OR IRREGULARITIES (FRAUD)
1.
2.
3.
4.
5.
6.
7.
8.
9.
Inventory may have been shipped but not recorded.
Inventory usage may have not been accurately recorded.
Purchase may have been recorded but the merchandise not received.
Merchandise may have been received but not recorded in purchases.
Purchases may have been recorded erroneously.
Unauthorized purchases may have been made.
Inventory may have been stolen.
Inventory may have been improperly counted.
Inventory may have been improperly valued.
Do in your F4 Size Notebook
4.1. Write down audit programs to audit the potential errors and irregularities of inventory
as stated above, and indicate the type of assertion that relate to your audit program
(existence or occurence, completeness, right and obligation, valuation or allocation, or
presentation and disclosure).
Another consideration in audit the inventory are finding answer to these questions:
1.
2.
3.
4.
5.
6.
7.
8.
Are inventories physically exists?
Are inventories owned by the company?
Are inventories costing includes freight, discounts, taxes etc.?
Are obsolete and unsalable inventories have been written off or written down?
Are inventories valuations correct?
Are inventories out on consignment properly recorded?
Are inventories properly classified as current asset?
Are inventories pledged as loan collateral properly disclosed?
Do in your F4 Size Notebook
4.2. Write down audit programs to answer the questions related to the assertion of
inventories as stated above, and indicate the type of assertion that relate to your audit
program (existence or occurence, completeness, right and obligation, valuation or
allocation, or presentation and disclosure).
B.
INFORMATION FOR SUBSTANTIVE TEST OF INVENTORY
The schedule of inventory valuation has been prepared by client and documented as W/P C-1.
The copy of the schedule is as follows:
Audit Practice Ch. 1
Page |1
W/P : C-1
Prepared by client
Apple Blossom Company
Inventory
12-31-2014
Items
Oils
#A601 Lemon
#A603 Lemon
#A608 Lemon
#R315 Apple
#R320 Apple
#Q291 Magnolia
Total Oils
Cremes
#H84 Hand Cremes
#F60 Face Cremes
Total Cremes
Lotions
#L612 Moisturizing
#L940 Skin Tone
#L818 Smoothing
Total Lotions
Colognes
#E801 Pomme
#E802 Abricot
#E803 Teint
#E804 Chevre
#E805 Jasmin
#E806 Citron
#E807 Rose
Total Colognes
Size
Ounces
No. of
Cases
No. of
Bottles
(24/Case)
Total
Ounces
Cost/
Unit
Amount
Inventory
2
4
6
4
6
8
321
156
138
102
20
21.5
7.704
3.744
3.312
2.448
480
516
15.408
14.976
19.872
9.792
2.880
4.128
2.6/oz
2.6/oz
2.6/oz
2.3/oz
2.35/oz
2.20/oz
40.061
38.938
51.667
22.522
6.768
9.082
169.037
4
4
590
540.5
14.160
12.972
56.640
51.888
4.17/btl
4.30/btl
59.047
55.780
114.827
8
8
8
820
615
105
19.680
14.760
2.520
157.440
118.080
20.160
3.60/btl
3.60/btl
3.20/btl
70.848
53.136
8.064
132.048
8
8
8
8
8
8
8
120
54
110
58
45
60
98.5
2.880
1.296
2.640
1.392
1.080
1.440
2.364
23.040
10.368
21.120
11.136
8.640
11.520
18.912
2.90/oz
2.90/oz
2.90/oz
2.90/oz
2.90/oz
2.90/oz
2.90/oz
3,974.5
95.388
66.816
30.067
61.248
32.294
25.056
33.408
54.845
303.734
719.646
The following is the document of inventory observation and test counts
Audit Practice Ch. 1
Page |2
W/P : C-2
Apple Blossom Company
Inventory Observation and Test Counts
12-31-2014
Stock Items
No.
STORE ROOM
L940 Skin Tone
L612 Moisturizing
L818 Smoothing
E806 Citron
E807 Rose
E801 Pomme
E803 Teint
E802 Abricot
F60
Face Cremes
H84 Hand Cremes
A608 Lemon
A603 Lemon
A601 Lemon
E804 Chevre
E805 Jasmin
Q291 Magnolia
R315 Apple
R320 Apple
Storeroom Total
SHIPPING DOC
F60
Face Cremes
E803 Teint
H84 Hand Cremes
Shipping doc total
Total inventory
No. of No. of
Cases Bottles
24/Case
Size of
Bottle
Total
Ounces
615
820
105
60
98,5
120
90
54
430,5
510
138
156
321
58
45
21,5
102
20
3764,5
14.760
19.680
2.520
1.440
2.364
2.880
2.160
1.296
10.332
12.240
3.312
3.744
7.704
1.392
1.080
516
2.448
480
90.348
8
8
8
8
8
8
8
8
4
4
6
4
2
8
8
8
4
6
118.080
157.440
20.160
11.520
18.912
23.040
17.280
10.368
41.328
48.960
19.872
14.976
15.408
11.136
8.640
4.128
9.792
2.880
553.920
110
20
80
210
2.640
480
1.920
5.040
95.388
4
8
4
10.560
3.840
7.680
22.080
576.000
Notes:
1. Number of cases has been tested during observation and no errors observed
2. The number of bottle in cases has been tested to 30 unopened case, and no exception.
3. No obsolete or damaged inventory was observed
4. For cut off, last receiving report #12-12 was used on 12/31/14. 150 cases of #F60 Face
Cremes were received from Fruit Juicy Perfume Co. That shipment included in the above
inventory.
Audit Practice Ch. 1
Page |3
Apple Blossom Cologne Company
Cash Voucher
(The Company Located in Chicago)
2014
Vo
No
Vendor
Item
1-24
Fruit Scents, Inc
Hope, Michigan
#A601-LO
#A603-LO
#A608-LO
#L818-SL
600
400
400
1200
1-29
Flash Freight Co
Freight for
Vo #1-24
2600 Cash
3-09
Fruit Juice
Missouri
#L940-STL
#L612-ML
#L818-SL
500 Net 30
200 Net 30
200 Net 30
5-21
Fruit Juice Per.
Missouri
#H84-4oz HC
#F60-4oz FC
6-34
Fruit Scents
Hope, Michigan
#E807-LDR
#R315-4oz AO
#R320-6oz AO
#Q291-8oz MO
Audit Practice Ch. 1
Quant Discount Freigt
(Cases)
Cost
Per
Case
Vendor
Invoice
Date
Receiving
Re. Date
120.8
245.9
370.4
72.8
1-23-14
1-23-14
1-23-14
1-23-14
1-24-14
1-24-14
1-24-14
1-24-14
4
1-28-14
FOBC
FOBC
FOBC
86.4
86.4
76.8
3-4-14
3-4-14
3-4-14
580 Net 30
600 Net 30
FOBC
FOBC
100
103.2
200
400
200
100
FOBH
FOBH
FOBH
FOBH
552.8
216.8
334.4
418.4
Net 30
Net 30
Net 30
Net 30
Net 30
Net 30
Net 30
Net 30
FOBH
FOBH
FOBH
FOBH
Date Amount
Paid Paid
2-11-14
2-11-14
2-11-14
2-11-14
72,480
98,360
148,160
87,360
406,360
2-17-14
10,400
3-10-14
3-10-14
3-10-14
2-26-14
2-26-14
2-26-14
43,200
17,280
15,360
75,840
5-6-14
5-6-14
5-9-14
5-9-14
5-14-14
5-14-14
58,000
61,920
119,920
6-25-14
6-25-14
6-25-14
6-25-14
6-26-14
6-26-14
6-26-14
6-26-14
7-1-14
7-1-14
7-1-14
7-1-14
110,560
86,720
66,880
41,840
306,000
Page |4
7-11
Flash Freight
Freight on
Vo. 6-34 (4/C)
900 Cash
9-14
Fruit Scents
Hope, Michigan
#E801 - LDP
#E802 – LDA
#E803 – LDT
#E806 – LDC
#E804 – LDCh
#E805 – LDJ
200
100
100
160
100
80
Net 30
Net 30
Net 30
Net 30
Net 30
Net 30
9-20
Fruit Scents
Hope, Michigan
#E803 – LDT
#E806 – LDC
120 Net 30
120 Net 30
9-25
Flash Freight
Freight on
Vo #9-14 and
#9-25 (4/C)
980 Cash
12-21
Fruit Juice Per.
Missouri
#L940 – STL
#H84 -4oz HC
800 Net 30
400 Net 30
FOBC
FOBC
86.4 12-24-14
100 12-24-14
12-35
Fruit Scents
Hope, Michigan
#A601 – LO
100 Net 30
FOBH
110.8 12-29-14
12-42
Flash Freight
Freight on
Vo. #12-35
(4/C)
100 Cash
4
7-11-14
FOBH
FOBH
FOBH
FOBH
FOBH
FOBH
552.8
552.8
552.8
552.8
552.8
552.8
9-4-14
9-4-14
9-4-14
9-4-14
9-4-14
9-4-14
FOBH
FOBH
552.8
552.8
9-5-14
9-5-14
4
9-15-14
4 12-29-14
7-21-14
3,600
9-11-14
9-11-14
9-11-14
9-11-14
9-11-14
9-11-14
9-17-14
9-17-14
9-17-14
9-17-14
9-17-14
9-17-14
110,560
55,280
55,280
88,448
55,280
44,224
409,072
9-12-14
9-12-14
9-22-14
9-22-14
66,336
66,336
132,672
9-22-14
3,920
12-29-14
12-29-14
1-8-15
1-8-15
69,120
40,000
109,120
12-30-14
1-9-15
11,080
1-9-15
400
******
Audit Practice Ch. 1
Page |5
Audit Practice Ch. 1
Page |6