GDB (ACC311)

Fundamental of Auditing

Covering Lecture 23-30

Topic for Discussion: “Testing the Inventory System”

Learning Objectives:

To assess the knowledge related to verification approaches during audit
To understand the process of testing the inventory system
To know the importance of inventory documentation and record processes in the business
To asses and understand the importance of control objectives while testing the inventory system during audit

Scenario:

ABC Chemicals – located in KTL industrial area, is one of the pioneer paint manufacturing companies in the country. Currently, it is facing liquidity issue to finance its production to increase the capacity. However, the company has plenty of inventory in its store which can be hypothecated with the bank to generate liquidity. Company’s director finance received a financial plan from his manager and approached to XYZ Bank for hypothecation against existing inventory. After negotiation, the bank agreed to provide term finance equal to 70 paisa per rupee on a markup of paisa 30 per thousand per day. However, the bank demanded a certificate on the inventory valuation by an independent auditor. ABC Chemicals with the approval of the bank has nominated you as an independent auditor.

Required:

Discuss at least four relevant “Control Objectives” which will be verified by you during this audit in order to test the inventory system of ABC Chemicals.

Important Instructions:

Carefully review your GDB before submission as it cannot be replaced once it is submitted.
Your discussion must be based on logical aspects of the topic requirements with proper justification.
Use the font style “Times New Roman” and font size “12”.
Your answer should be relevant to the topic i.e. clear and concise.
Word limit for GDB is 200.
Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
You should post your answer on the Graded Discussion Board (GDB), not on the Moderated Discussion Board (MDB). Both will run parallel to each other during the time specified above. Therefore, due care will be needed.
Obnoxious or ignoble answer should be strictly avoided.
You cannot participate in the discussion after the due date via email.
Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.
For planning your semester activities in an organized manner, you are advised to view schedule of upcoming Assignments, Quizzes and GDBs in the overview tab of the course website on VULMS.
As you know that load shedding problem is also prevailing in our country. Keeping in view the fact, you are advised to submit your GDB well before time without waiting for the due date. For your convenience; you have been communicated so that you can manage your activities, therefore no excuse will be entertained after due date of GDB.