ACCA F8 - Audit and Assurance Revision Kit 2016
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(2) Establish an estimate of costs to completion (to include in the NRV calculation). This will
involve the following:
The books may be complete, but if not (for example the books are unbound) the
auditor must determine the cost to completion using actual post year end cost records
or budgeted costs. Any further costs for returned books to make them saleable should
also be taken into account.
(3) Determine directly attributable selling, distribution and marketing costs (to form part of the
NRV calculation).
Estimate these costs for the books being tested and whether any apportionment of
costs to inventory lines is reasonable (for example apportionment by weight or size for
distribution costs).
(4) Combine the three elements above (1 less 2 and 3) to arrive at NRV and compare with the
cost. Discuss your findings and estimates with management and other informed staff to gain
comfort that conclusions are reasonable.
93 Lily
Text references. Chapters 11, 10 and 13.
Top tips. This case-study style question is based on procedures at an inventory count. In (a) you need to fully
explain each deficiency before you move on to providing relevant recommendations. As you read through the
scenario ask yourself what could go wrong and to what extent the inventory count procedures do, or do not,
address these issues. This will help you explain your deficiencies as your explanation will include the possible
consequences of the missing or ineffective control.
In (b) your procedures must be those that can realistically be carried out during the inventory count, not before or
after. These will therefore include observing the teams to make sure they are following instructions, test counting
and making notes of GRNs and GDNs. Your procedures should not include standard inventory tests that would be
carried out later during the detailed audit fieldwork, such as reconciling quantities from the final listing back to the
inventory count sheets.
Part (c) for 12 marks on CAATs may look daunting at first, but taking each sub requirement in turn and breaking it
down into manageable parts should help when working through such a question. In (i) your CAATs must be
relevant to the inventory cycle and year end inventory balance. You can generate these CAATs by asking yourself
initially what procedures need to be carried out before then determining whether a CAAT would help. For example,
anything involving a calculation (inventory days, ageing, recalculating costs) could potentially be performed using
CAATs. In (ii) and (iii) you should be able to suggest advantages and disadvantages of CAATs, with the advantages
being centred around time and cost savings in the long term.
Easy marks. You should have been able to identify and explain deficiencies in (a) and suggest procedures (b).
Marking scheme
(a)
Marks
Up to 1 mark per well explained deficiency and up to 1 mark per
recommendation. If not well explained then just give ½ mark for each.
Warehouse manager supervising the count
No division of responsibilities within each counting team
Internal audit teams should be checking controls and performing sample counts
No flagging of aisles once counting complete
Additional inventory listed on sheets which are not sequentially numbered
Inventory sheets not signed by counters
Damaged goods not moved to central location
Movements of inventory during the count
Warehouse manager not qualified to assess the level of work-in-progress
Warehouse manager not experienced enough to assess the quantities of raw
materials 12
144 Answers