ACCA F8 - Audit and Assurance Revision Kit 2016

(a)
Deficiency
The warehouse manager will supervise the
inventory count and is not independent as he has
overall responsibility for the inventory. He therefore
has an incentive to conceal or fail to report any
issues that could reflect badly upon him.
Aisles or areas counted will not be flagged. This
could result in items being double counted or not
counted at all.
There is no-one independent reviewing controls
over the count or test counting to assess the
accuracy of the counts.
Damaged goods are being left in their location
rather than being stored separately. This makes it
more difficult for finance to assess the level of
damage to the goods and establish the level of
write down needed. Also, if not moved, damaged
goods could be sold by mistake.
Due to the continuous production process, there
will be movement of goods in and out of the
warehouse during the count, increasing the risk of
double counting or failing to count inventory. This
could mean inventory in the financial statements is
under or overstated.
The warehouse manager is going to estimate WIP
levels. The warehouse manager is unlikely to have
the necessary experience to estimate the WIP
levels which is something the factory manager
would be more familiar with. Alternatively a
specialist may be needed to make the estimate.
This could ultimately result in an inaccurate WIP
balance in the financial statements.
The warehouse manager is going to approximate
RM quantities. Although he is familiar with the RM,
and on the basis that a specialist has been required
in the past, the warehouse manager may not have
the necessary skill and experience to carry out
these measurements. This could result in an
inaccurate RM balance in the financial statements.
There is no indication that inventory sheets are
signed or initialled by the counting team, nor a
record kept of which team counted which area.
This means it will be difficult to follow up on any
Recommendation
An independent supervisor should be assigned, such
as a manager from the internal audit department.
Once areas have been counted they should be flagged.
At the end of the count the supervisor should check all
areas have been flagged and therefore counted.
Instead of the internal auditors being involved in the
count itself, they should perform secondary test
counts and review controls over the count.
Damaged goods should be clearly marked as such
during the count and at the end of the count they
should be moved to a central location. A manager
from the finance team should then inspect these
damaged goods to assess the level of allowance or
write down needed.
Although it is not practicable to disrupt the continuous
production process, raw materials (RM) required for
31 December should be estimated and separated from
the remainder of inventory. These materials should be
included as part of work-in-progress (WIP).
Goods manufactured on 31 December should be
stored separately, and at the end of the count should
be counted once and included as finished goods.
Goods received from suppliers should also be stored
separately, counted once at the end and included in
RM. Goods despatched to customers should be kept
to a minimum during the count.
A specialist should be used assess the work-inprogress.
As in previous years, a specialist should assess the
quantities of raw materials, or at least check the
warehouse manager’s estimate to give comfort that
the manager’s estimates will be reasonable going
forward.
Inventory sheets should be signed by both team
members once an aisle is completed. The supervisor
should check the sheets are signed when handed in.
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