This 30-mark question was based on a glass manufacturer, Lily Window Glass Co (Lily), and tested candidates’ knowledge of internal controls, procedures undertaken by the auditor during an inventory count and computer assisted audit techniques (CAATs).

Part (a) for 12 marks required candidates to identify and explain, for the inventory count arrangements of Lily, six deficiencies and suggest a recommendation for each deficiency.

Most candidates performed very well on this part of the question. They were able to confidently identify six deficiencies from the scenario. However, some candidates did not address the question requirement fully as they did not “identify and explain”. Candidates identified, but did not go on to explain why this was a deficiency.

For example “additional inventory sheets are not numbered” would receive ½ mark, however to obtain the other ½ mark they needed to explain how this could cause problems during the inventory count; such as “the additional sheets could be lost resulting in understated inventory quantities”.

The requirement to provide controls was also well answered. Most candidates were able to provide practical recommendations to address the deficiencies. The main exception to this was with regards to the issue of continued movements of goods during the count.

The scenario stated that Lily undertakes continuous production; therefore to suggest “that production is halted for the inventory count” demonstrated a failure to read and understand the scenario. The scenario is designed to help candidates and so they should not ignore elements of it.

Some candidates incorrectly identified deficiencies from the scenario, demonstrating a fundamental lack of understanding of the purpose of an inventory count. For example, a significant minority believed that inventory sheets should contain inventory quantities when in fact this is incorrect, as this would encourage markers to just agree the stated quantities rather than counting properly.

In addition candidates felt that counters should not use ink on the count sheets as pencil would be easier for adjustments, again this is incorrect, as if the counts are in pencil then the quantities could be erroneously amended after the count. Also candidates felt that there should be more warehouse staff involved in the count, despite the self- review risk.

Many candidates set their answer out in two columns being deficiency and recommendation. However, those who explained all of the deficiencies and then separately provided all of the recommendations tended to repeat themselves and possibly wasted some time. In addition, the requirement was for six deficiencies; it was not uncommon to see candidates provide many more than six.