Your firm is the auditor of Trent Textiles Ltd, and you are planning your audit work on the stock-take, which will be carried out at the firm‘s year-end of 31 May 19X3. Trent Textiles manufactures knitted garments, including pullovers. The production process comprises: (a) Knitting the individual components (e.g. body and arms); (b) Sewing the components together to form the finished garment; (c) Cleaning, finishing, pressing and folding the garments; (d) Packing the garments, ready for dispatch to the customer. Trent Textiles does not have a perpetual inventory system, so the value of the stock in the accounts is found from the stock-take at the year-end. For management purposes, Trent Textiles carries out a full stock-take every three months. Your permanent file of the company confirms that it has a single factory and no internal audit department. You have been asked by the manager in charge of the audit to suggest the work you will perform at the stages listed below. Required: State the procedures you will check during the stock-take to ensure the company‘s staff have accurately recorded the stock

The first step in checking that the company‘s staff have accurately recorded the stock will be to examine the stock taking instructions issued to stock taking staff. This will involve checking that the following procedures are in place:

i) Supervision of the planning and execution of the stock-take by sufficient senior and qualified personnel drawn from various departments: at least some of the officials should not normally be involved with the custody of stocks.
ii) Tidying and marking stock to facilitate counting of items of stock. The whole of the stock taking area should be divided into sections for control purposes.
iii) The serial numbering and control of the issue and return of all the rough count records, and their retention.
iv) Systematic carrying out of counts to ensure coverage of the whole stock.
v) Arrangements for the count to be conducted by at least two people, with one counting and the other primarily to check the count, or alternatively for tow independent counts to be carried out; and for any differences arising to be investigated and resolved.
vi) Stock sheets being complete in ink and being signed by those who carried out and checked the count.
vii) Information to be recorded on the count records. (normally this will include the location and identity of the stock items, the unit of count, the quantity counted, the condition of the items and the stage reached in the production process).
viii) Restriction and control of the production process and stock movements during the count.
ix) Identification and segregation of damaged, obsolete, slow moving, third parties‘ stocks and returnable stocks, so that these can be properly accounted for and recorded.
x) Recording the quantity, condition and stage of production of all the work in progress for subsequent checking with the costing and stock records.
xi) Co-ordination of the count with cut off procedures so that documentation concerned with the flow of goods can be reconciled with the financial records. For this purpose, last numbers of goods inwards and outward records and of internal transfer records should be noted.
xii) Reconciliation with the stock records, if any and identification and correction of differences.

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