Tutor‟s hint: The audit of stock is an important subject in this paper. Remember that the stock-take attendance gives the auditor assurance of existence of stock, not ownership or value. In (a) think of the information the auditor needs, and then ask how it will be obtained. Key elements in (b) are supervision, who caries out the count, how the count is to be carried out and recorded, and special arrangements for certain stock.
(a) The work I will carry out prior to the commencement of the stock-take will be as follows:
i) Review previous year‘s audit working papers and discuss any developments in the year with management.
ii) Obtain and review a copy of the company‘s stock taking instructions.
iii) Arrange attendance at stock count planning meetings, with the consent of management.
iv) Gain an understanding of the nature of the stock and of any special stock taking problems this is likely to present, for example scrap in piles.
v) Consider whether specialist involvement is likely to be required as a result of any circumstances noted in (iv) above.
vi) Using the results of the above steps, plan for audit attendance by appropriately experienced audit staff.
vii) Consider the impact of internal controls upon the nature and timing of the stock taking attendance.
viii) Discuss with the management the extent to which each garment is considered complete at each stage of the manufacturing process.