Auditing & Assurance Services 6th Edition by Timothy Louwers

Exercise 40

Tracing the Inventory Count. You have been assigned to trace the results of the observation of Brightware China's physical inventory count to its pricing and compilation. You note the following conditions.
1. The last inventory tag documented by Mark Hulse, the auditor who observed the inventory, was 1732, but you notice a number of items with count ticket numbers higher than 1732. You contact the client's controller, Marcia Vines, who tells you the client found a storage room full of a new product that Brightware had just produced and added it to the inventory.
2. The count tickets recorded by Hulse agree to the inventory list, but some of the other count tickets you select are substantially different from it. Vines tells you these are input errors and she will have them corrected.
3. Hulse described several boxes of goods as being dusty and even broken. They are included in the inventory at cost. Vines's explanation is that china never "goes bad" and the goods themselves were not broken.
Required:
a. Prepare an audit plan for tracing the information from the inventory count to the compilation.
b. What might have caused the conditions you found? What effect might they have on the financial statements?
c. What steps will you take to follow up on Vines's explanations?