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In kaplan text,
there’s a control about inventory counts being undertaken on a regular basis to ensure that physical inventory reconciles with the records and that they’re upto date and recorded accurately.
One of the TOCs is to Attend inventory count and ”perform test counts” to ensure that it’s in accordance with the instructions… It’s a TOC and not a Substantive since we’re doing that to check if control is effective…… would the examiner know that I know this is a dual purpose procedure or would she penalise me for suggesting a substantive procedure…………….
I think if you say attend a “periodic count” and “REperform” test counts – it should be clear that you are not talking about substantive procedures at a full year-end physical count. In fact you can only be talking about a TOC and not a substantive procedure because test counts at interim dates provide only INdirect evidence that quantities will be correct at the y/e – if the control is seen to be working. So it is not dual purpose. You can also think of it in this way – substantive, ultimately, has to concern monetary amounts – but the quantities of the test counts during the year will not be costed into a valuation – management only needs to do that at the y/e to determine $ inventory for the financial statements.
Wow, I got it, a whole new learning point!! Thank you so much you’re the best!!
You ask good questions that give me the opportunity to explain specifics with a practical slant and so demonstrate that AA is not a “theory paper” – that theory cannot merely be learnt and regurgitated but has to be understood in order to apply it to a given scenario. Your posts should therefore be very useful to your fellow students.
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