Question 1c
Marking Guide
up to 1 mark per well described procedure, max of 4 procedures | ||
| calculate inventory days | ||
| produce an aged inventory analysis to identify any slow moving goods | ||
| cast the inventory listing | ||
| select a sample of items for testing to confirm net realisable value (nrv) and/or cost | ||
| recalculate cost and nrv for sample of inventory | ||
| computer-assisted audit techniques (caats) can be used to confirm cut-off | ||
| caats can be used to confirm whether inventory adjustments noted during the count have been updated to inventory records. | 4 | |
| (ii) | up to 1 mark per well explained advantage | |
| test a large volume of inventory data accurately and quickly | ||
| cost effective after setup | ||
| caats can test program controls as well as general it controls | ||
| test the actual inventory system and records rather than printouts from the system | ||
| caats reduce the level of human error in testing | ||
| caats results can be compared with traditional audit testing | ||
| free up audit team members to focus on judgemental and high risk areas | 4 | |
| (iii) | up to 1 mark per well explained disadvantage | |
| costs of using caats in this first year will be high | ||
| team may require training on the specific caats to be utilised | ||
changes in the inventory system may require costly revisions to the caats | ||
| the inventory system may not be compatible with the audit firm’s caats | ||
| if testing the live system, there is a risk the data could be corrupted or lost | ||
| if using copy files rather than live data, there is the risk that these files are not genuine copies | ||
| adequate systems documentation must be available | 4 | |
| max marks | 12 | |