Q1 Cost accounting controls relate to the physical inventory and the related costs of a product from raw material to finished good and storage of that finished good. These are basically in two categories: first is the control on physical inventory and the process to a finished good. This will focus on the product itself from raw material, workflow and the stages of completion, and then the finished product.
Secondly, is the cost associated with the process and the controls that exist controlling and monitoring those costs.
The auditors test of cost accounting will include reviewing the physical controls of the materials used to produce the goods: records for transferring inventory from location to location: review of the perpetual inventory master files which allow for a much more accurate testing of inventory prior to the financial statement date: and unit cost data which would include proper costing of materials, labor and any manufacturing overhead. Any thoughts?
Q2 An item of interest during the audit completion process, actually, this would be after the statements have been issued. What happens if the auditor discovers that the financial statements are in fact misleading after the opinion and audited financials have been released? The first courses of action for the auditor would be to have the client restate the financial statements to disclose the discover facts. The reissuance of the financial statements is only appropriate if the subsequent facts were from events that existed prior to the date of the audit report. Of course, there is the concept of materiality that must be considered, and what was known, or not known, by the client or the auditor.
Now, what does the auditor need to do if the client refuses to restate the statements, how does the auditor proceed? The auditor should first inform the board of directors, they may need to notify the appropriate regulatory agencies, and where plausible to notify the investing public. The latter can be accomplished with the assistance of the SEC or the exchange on which the company is traded. Any thoughts?