Question: Detection of Errors and Fraud. For each of the following independent events, indicate the (1) effect of the error or fraud on the financial statements and (2) what auditing procedures could have detected the misstatement resulting from error or fraud.
a. The physical inventory count of J. Payne Enterprises, which has a December 31 yearend, was conducted on August 31 without incident. In September, the perpetual inventory was not reduced for the cost of sales.
b. Holmes Drug Stores counted its inventory on December 31, which is its fiscal year-end. The auditors observed the count at 20 of Holmes's 86 locations. The company falsified the inventory at 20 of the locations not visited by the auditors by including fictitious goods in the counts.
c. Pope Automotive inadvertently included in its inventory automobiles that it was holding on consignment for other dealers.
d. Peffer Electronics Inc. overstated its inventory by pricing wiring at $200 per hundred feet instead of $200 per thousand feet.
e. Goldman Sporting Goods counted boxes of baseballs as having one dozen baseballs per box when they had only six per box.