24 Oct Option #1: Inventory Observation
YOU ARE SCHEDULED TO BE PRESENT FOR THE INVENTORY OBSERVATION OF ONE OF YOUR MANUFACTURING AUDIT CLIENTS. DURING THE OBSERVATION, YOU NOTICED THE FOLLOWING:
Some of the employees who were counting the inventory stopped to load a truck for shipment.
During test counts, you noticed that the expiration date of a large bin of items was two years old. When you questioned the client, the inventory manager told you that he/she felt the company could still sell the items.
At the end of the day, a large shipment was received. It was not included in the count.
Prepare a report discussing the following:
The procedures you should perform before going on-site for the inventory observation.
Based on this preliminary review of the client’s inventory, you determine that there is a significant risk of material misstatement and/or fraud. Discuss what changes you will make to the normal observation process based on this information.
The procedures you will take to address each of the issues noted during the observation.
