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 work you will carry out and the matters you will record at the stock-take

The following work should be carried out at the stock-take:

i) Carry out a series of test counts between the stock and the count records and vice- versa. Attention should be given to high value stocks.
ii) Obtain information about the stock‘s condition, age, usage and, in the case of work in progress, its stage of completion.
iii) In order to ensure that cut-off stock is correct, the following procedures should be carried out:
1. Make a record during the stock taking attendance of all movement notes relating to the period, including:
– All inter-departmental requisition numbers;
– The last goods received note and dispatch note prior to the count;
– The first goods received note and dispatch note after the count.

2. Observe whether correct cut-off procedures are being followed in the dispatch and receiving areas. Discuss procedures with company staff performing the count to ensure they are understood.
3. Ensure that no goods finished on the day of the count are transferred to the warehouse.

(iv) Finally the auditors should:

1. Conclude whether the stock taking has been properly carried out and is sufficiently reliable as a basis for determining the existence of stock;
2. Consider where any amendment is necessary to their subsequent audit procedures; and
3. Try to gain from their observations an overall impression of the levels and values of stocks held so that they may, in due course, judge whether the figure for stocks appearing in the financial statements is reasonable.