Explorer

The issuer held certain inventory at locations owned by external parties. The firm performed confirmation procedures to test the existence of this inventory but did not maintain control over the confirmation requests because the issuer sent the requests. (AS 2310.28)

Outside custodians held certain of the issuer's inventory. The firm did not perform sufficient procedures to test the existence of this inventory because it limited its procedures to the roll forward described above and positive confirmation requests with the outside custodians. Further the firm did not perform procedures to compare the quantities of inventory included in the confirmation responses to the quantities in the issuer's records. (AS 2301.08; AS 2510.14)

To substantively test inventory the firm rolled forward the inventory balance from prior year and performed procedures to test the activity during the year including confirming purchases of inventory. The firm received an electronic response to one of its confirmation requests related to the purchase of inventory that was received from a different email address than the contact email address included in the issuer's contracts with the vendor. The firm did not consider performing procedures to verify the source of the response. (AS 2310.29)

The firm selected for testing controls over inventory including two automated controls related to (1) the recording of inventory at standard cost when warehouse staff marked inventory as received in the system and (2) the application of standard labor and overhead to materials inventory. The firm's approach to testing these controls was to test a single transaction. The firm did not evaluate whether each automated control was configurable and if so whether each control was configured appropriately within the system and as a result the firm's testing of these automated controls using a sample of only one instance was not sufficient. Further the firm did not perform any procedures to test the manual aspect of an automated control over inventory related to the manual confirmation of inventory received. (AS 2201.42 and .44)

Deficiencies testing cycle-count controls, an excess/obsolescence reserve, and supplier confirmations for inventory.

The firm did not perform sufficient procedures to test the existence of certain inventory located at external warehouses. Although the firm sent confirmations to the outside custodians no responses were received. The firm's alternative procedures were not sufficient because the firm limited its procedures to agreeing the total quantity of the inventory located at the warehouses to reports provided by the owner of the warehouses to the issuer. (AS 2510.14)

For two business units the issuer held certain inventory at locations owned by external parties. The firm performed confirmation procedures to test the existence of this inventory but did not maintain control over the confirmation requests because the issuer sent the requests. (AS 2310.28)

The principal auditor also instructed the firm to substantively test inventory. To test the existence of inventory the firm confirmed certain inventory quantities held in a public warehouse and observed the issuer's physical inventory counts at other locations including verifying the weight of select inventory items using the issuer's scales and obtaining certificates of scale calibration from management. The following deficiency was identified: · The firm received an electronic response to a positive confirmation request sent to the warehouse that held the inventory. The firm did not perform procedures to address the risks associated with the electronic response such as verifying the source and contents of the response. (AS 2310.29)