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Hello, the following paragraph is taken from the Dec 2013 ques.:
“As the level of production has increased, the company has expanded the number of warehouses it uses to store inventory. It now utilizes 15 warehouses; some are owned by Minty and some are rented from third parties. There will be inventory counts taking place at all 15 of these sites at the year end.”
Question 1B asks for audit risks and the auditors response to the risk.
From the extract provided above, I would think that there is a risk that the inventory counted may not belong to Minty. The auditor’s response would be to ensure that while the count is in progress, knowledgeable staff is there to identify Minty’s inventory or alternatively Minty’s inventory should be properly identified by marks.
However, the ACCA answer for this question did not mention that. As such , am I incorrect ? If not, please explain. Thanks.
I don’t think that 3rd party inventory is particularly an issue here (more than ever it is). Just because warehouses are rented does not mean that we do not have exclusive use of them.
I think the bigger risk arises from having 15 inventory counts. Will the auditor be able to observe all? Will all count teams follow instructions properly? Will the inventory in all sites have been properly organised so that damages (and 3rd party) inventory can be identified? There could be substantial complications arising from goods in transit between warehouses.
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