Inventory Observation Assignment
This assignment must be performed and documented in groups of 2-3 people.
You are a staff auditor with LEG Inc. and have been assigned to an inventory observation for the client, UIW, specifically for the Picnic Table asset group. (Hint: Although Picnic Tables are not true "inventory" since they are not being sold, we will observe the asset as if it were inventory). UIW has two types of picnic tables located across their campus, each with a different assigned inventory cost and description. You have been provided with the following information:
- An Inventory account blank audit program.
- A detailed Picnic Table inventory record detailing all picnic tables as of the date of the inventory observation 10/21/16.
- A partial adjusted trial balance as of 10/21/16 and the complete Balance Sheet.
- The client's Picnic Table manual describing the various types of tables, their descriptions and assigned costs.
- A campus map showing the locations referenced in the inventory record.
You are to do the following:
1- Prepare an audit program (matrix) for the Picnic Table asset group:
a. Include key assertions pertaining to traditional inventory asset accounts. Describe the account assertions as they pertain specifically to inventory.
b. Link the appropriate audit step (given below) to the relevant key assertion.
c. Sign-off and date the audit steps as work is performed.
2- Use the client's inventory record as workpaper K1 and document all necessary steps and findings on the workpaper. (Any relevant supporting workpapers can be assigned references K1-1, K-2 etc). Your instructor will act as the "client" in the event that additional supporting documentation is needed.
Note: The engagement team has determined that the materiality scope for this asset account is individual and/or combined misstatements greater than $750.
Audit Steps:
1- Trace the total balance per the inventory record to the adjusted trial balance. (You manager has already agreed the adjusted trial balance to the financial statements without exceptions.)
2- Foot and cross foot the inventory record to ensure all calculations have been properly recorded.
3- Trace assigned inventory costs (for the two inventory categories) per the inventory record to the company's Picnic Table manual. Verify that inventory costs per the manual agree to original invoice documentation.
4- Select a sample of 7 items from the inventory record. Trace the sample to the "floor", by locating and physically observing the asset on campus. Check that all information pertaining to the asset agrees with your physical inspection of the item. (Note selected items with a tickmark reference on K1.)
5- Walk through campus and randomly select a sample of 4 items from the "floor". Trace and agree this sample to the inventory record. Ensure that assets are properly included and documented in the inventory record. (Make note of these "floor" samples on K1 or create a separate workpaper to note this work.)
Attachment:- Inventory Observation Assignment.rar