13-1 Inventory represents one of the most complex parts of the audit because the
assignment of values to inventory quantities is difficult. There are also issues such as
obsolescence and lower of cost or market that affect the valuation of inventory. The
complexity of auditing inventory may also be affected by the degree of processing required
to manufacture products.
13-33 a. The auditors did not follow the following audit procedures in a satisfactory
manner:
• Control of count sheets during and after the inventory. There may not have been adequate
supervision and instruction of the inventory observation teams by the auditors. There is no
evidence that there was adequate preplanning of the inventory count. Even though it is
difficult to spend continuous time in the upper decks, there must be a careful control over
their contents and planned counting must still be observed.
• Although the late addition of such sheets is highly irregular, the auditors did very little to
satisfy themselves of their accuracy. The altering of count sheets after the auditors left
could have been prevented by “lining out” unused portions of the count sheet prior to
leaving the inventory observation. Test counts of lines on sheets could also have detected
the changes.
• Physically examining inventory represented on additional count sheets with specific
assurances that the items did not represent duplications in the count. Tracing the items to
purchase invoices does not prove existence at the inventory date, only that the items were
at one time bona fide.
• Questions about inventory turnover and similar comparisons should have been raised and
