The Likeside Company: Auditing Cases
AUDITING PROCEDURES AND AUDITING DOCUMENTATION: TESTING THE INVENTORY PURCHASING SYSTEM

Art Heyman is employed as a staff auditor with the independent accounting firm of Abernethy and Chapman. For the first two weeks of December 2012, Heyman is asined to the Lakeside Company examination. During this period, he is to perform a number of testing procedures designed by Carole Mitchell, in-charge auditor on the engagement. Heyman recalled that several parts of the initial risk brainstorming involved inventory and merchandise purchases. At the present time, Heyman is beginning to analyze the transactions that occur in the client's merchandise procurement system. Within this testing, he is especially …show more content…

The prices shown for the acquired items are compared to a master price list, and each invoice is extended and footed to establish mathematical accuracy. If all information is proper, the three documents are stapled together and placed in a due date file. On this date, the forms are removed and a check is prepared for the appropriate amount after reducing the balance for any cash discount being offered. The Treasurer uses the "Office Use" stamp and indicates the check number. Lakeside's management makes several broad assertions regarding the inventory procurement system, as well as other systems and accounts: existence or occurrence, completeness, rights and obligations, valuation or allocation, and presentation and disclosure. Thus,, Lakeside's management asserts that the inventory being reported actually exists, that the account is complete, that the inventory belongs to them, that it is properly valued, and that it is properly presented in the financial statements along with appropriate disclosures. In evaluating these assertions, Mitchell and Heyman are aware that a variety of potential problems could exist: payment might be made for goods that were never reced; Lakeside could fail to pay for merchandise, thus incurring an unrecorded liability; the company may simply be paying incorrect amounts; etc. Consequently, within the audit program, Mitchell has designed audit procedures to test for the possibility of such occurrences, and, in general, to test all of the