Understanding Questions: Inventory

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    I was attempting a question “Fizzipop” in the BPP exam kit and the question asked for the test that I would perform on the ‘Stockpop’ system (which is integrated with the purchases and sales system) during the year.

    I thought I should answer the question from a viewpoint of auditing the actual ‘Stockpop’ system.
    - obtain the instructions for the system and then discuss with persons to ensure they are using the system correctly.
    - Test that purchases and sales are being recorded by the ‘Stockpop’ system.
    - Review the sales price to assess if the Inventory is correctly valued at lower of cost / nrv

    But when I checked the solutions it said that the key issue was to ensure that the system forms a sound basis for recording the quantity of Inventory, and then they proceeded to give audit test for stock counts.

    So my question now is where did I go wrong in my understanding / interpretation of this question

    Thanks for any advice that you can share.

    Avatar of gromit
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    I think you are right: the model answer places too much emphasis on a stock count. I would certainly hope that there was at least one stock count during the year and would like to examine how that was done ans the extent to which book stack and actual stock differed. However, it would be very important to assess how well the system recorded receipts and despatches during the year (your second point above).Their last four points deal with other matters, but the model answer completely fails to deal with stock valuation (your third point) and deals with physical quantities only.

    I hope that puts your mind at rest.

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