As a part of your clerical tests of inventory for Martin Manufacturing, you have tested about 20 percent of the dollar items and have found the following exceptions:
1. Pricing errors:
Description Quantity Price Actual Price
Wood 920 board feet $ 0.32/board foot $ 0.22/board foot
Metal-cutting tools 49 units 300.00 each 30.00 each
Cutting fluid 26 barrels 40.00/barrel 36.00/barrel
Sandpaper 600 sheets 0.95/hundred 0.90/hundred
Required
Required
Based on AICPA question paper, American Institute of Certified Public Accountants.
Chapter 21 / AUDIT OF THE INVENTORY AND WAREHOUSING CYCLE 727
2. Differences located in comparing last year’s costs with the current year’s costs on the client’s inventory lists:
Description Quantity This Year’s Cost Preceding Year’s Cost
TA-114 precision-
cutting torches
12 units $800.00 each Unable to locate
Aluminum scrap 4,500 pounds 8.00/ton $95.00/ton
Lubricating oil 400 gallons 55.00/gallon 95.00/barrel
3. Test counts with different quantities on the tag compared to the priced compilation.
Tag No. Quantity on Tag Quantity in Priced Compilation Price
1793 20 tons 200 tons $70.00/ton
2322 400 gallons 360 gallons 58.00/gallon
0568 6 units 16 units 700.00 each
4. Test counts that you were unable to find when tracing from the test counts to the
final inventory compilation:
Tag No. Quantity Current Year Cost Description
2958 20 tons $75.00/ton Cold-rolled bars
0026 3,000 feet 2.25/foot 4-inch aluminum stripping
5. Summarization errors – The client accidentally excluded the last worksheet with
products totaling $2,375.36 from the inventory summary.
a. State the amount of the actual misstatement in each of the five tests. For any item for which the amount of the misstatement cannot be determined from the information
given, state the considerations that will affect your estimate of the misstatement.
b. As a result of your findings, what will you do about clerical accuracy tests of the in-
ventory in the current year?
c. What changes, if any, would you suggest in internal controls and procedures for
Martin Manufacturing during the compilation of next year’s inventory to prevent
each type of misstatement?
