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SEA GULL AIRFRAMES, INC.

WAREHOUSE DEPARTMENT
AUDIT OF INVENTORY

Cesar Almario
Louise Franchesca Bias
Johnrenzo Canoy
Snyrrah Jannel De Vera
Angela Liban
Paolo Munar

2015 WAREHOUSE DEPARTMENT Page 2 . AUDIT OF INVENTORY IA12404 GROUP 7 October 1. INC.SEA GULL AIRFRAMES.

................................................................................... 5 IV............. 3 II....................................... AUDIT OF INVENTORY TABLE OF CONTENTS I.. 5 III.......................... A............ INTRODUCTION.............7 WAREHOUSE DEPARTMENT Page 3 ................................................................................................................................................ 6 ASSOCIATED RISKS AND RECOMMENDATION.......................................................................................... INC................... 6 V...... AUDIT SCHEDULE SUMMARY.............. DISCUSSIONS.. 6 B. BACKGROUND..................................................... CASE ASSIGNED............SEA GULL AIRFRAMES.................................................................... FINDINGS....................................................

This is the first time Sea Gull Airframes has been audited by your firm. The book values are as follows: More than $5. In performing inventory price tests.000. The company designs and manufactures aircraft superstructures and airframe components. The inventory at December 31. WAREHOUSE DEPARTMENT Page 4 . You have tested the following items. CASE ASSIGNED You are assigned to the December 31. along with the relevant data for determining the proper valuation. are shown next.150.500 5. This bill was entered in the freight-in account.600 Sea Gull Airframes uses a periodic inventory system and values its inventory at the lower of FIFO cost or market. Virtually all freight was for the metal formers. You observed the physical inventory at December 31 and are satisfied that it was properly taken.000 and those with a value of less than $5.000. you noted a freight bill for voucher 12-23 in the amount of $200. which you believe may be misstated. AUDIT OF INVENTORY I.000 In performing pricing and extension tests. audit of Sea Gull Airframes. 2013.000 2.000 No. you have decided to test about 50 inventory items in detail.000 items and 10 of those under $5. has been priced. of items 500 4.125. extended. and totaled by the client and is made up of about 5. You were able to locate all invoices needed for your examination.000 No.000 Total Value $4.000 $8. 2013.275. INC. The seven inventory items in the sample you believe may be misstated. to this point.000 4.000 at random from the population. You selected 40 of the over $5. You find all items to be correct except for items A through G below. exclusive of A through G: More than $5.000 Less than $5.000 inventory items with a total valuation of $8. you have decided to stratify your tests and conclude that you should have two strata: items with a value over $5.SEA GULL AIRFRAMES.275. In addition. Inc. of items 36 7 Total Value $360.000 Less than $5.

12-24-13 1-03-14 2/10. destination guaranteed for 4 years 12-27-13 12-27-13 2/10. Prepare an audit schedule to summarize your findings. V16 fasteners 5.20 FOB S.20/foot C.000 inches 1. n/30 12-26-13 12. Use the computer to prepare the schedule (instructor’s option). Industrial hand drills 45 units 20. n/30 12-10-13 180 L803 steel leaf spring at $69 each FOB S.000 8.000 meters L37 spars at $7.00 each F.500 yards 10.000 meters $ 8. Total1 $ 24. 12-10-13 12-18-13 Net FOB 12-11-13 45 industrial hand drills at $20 each.SEA GULL AIRFRAMES. Review all information and determine the inventory misstatements of the seven items in question.P.800 inches B68 metal formers at $1. B68 metal formers 10. L803 steel leaf springs 40 pairs 69.50 per meter. n/30 12-20-13 4.00/yard D.00/meter B.200 meters L37 spars at $8 per meter FOB dest. State any assumptions you consider necessary to determine the amount of the misstatements.000 yards R01 metal ribs at $10 per yard 1 WAREHOUSE DEPARTMENT Page 5 .00 each spring G. L37 spars 3. per foot 12-29-13 1-08-14 Net FOB 12-29-13 1.000 yards R01 metal ribs at $10 per yard.000 feet 8. St26 struts 1.00/foot E.000 12. destination 800 feet St26 struts at $8 per foot 12-31-13 1-20-14 Net FOB 1-06-14 2.00/dozen Amounts are as stated on client’s inventory.000 900 276 55 Required: a. R01 metal ribs 1.50 dozens 10. AUDIT OF INVENTORY INVENTORY ITEMS POSSIBLY MISTATED Description Quantity Price A. b. INC. destination 2. Voucher number 7-68 11-81 12-06 12-09 12-18 12-23 12-61 12-81 INFORMATION FOR PRICING FROM INVOICES (SEA GULL AIRFRAMES) Voucher Date paid Terms Receiving Invoice Description date Report Date 8-01-08 8-20-08 Net FOB 8-01-08 77 V16 fasteners at $10 per dozen destination 10-16-13 11-15-13 Net FOB 10-18-13 1.000 15.100 yards R01 metal ribs at $8.P.20 per destination foot 12-08-13 12-30-13 2/10.

Freight bill for voucher 12-23 in the amount of $200 was entered in the freight-in account where it should actually be accounted for the metal formers. AUDIT OF INVENTORY II. WAREHOUSE DEPARTMENT Page 6 . Physical inventory at December 31. has been operating it’s glorious business since 2008. flies for its success. to add value and to assure that the controls implemented by the company to its inventory management is still properly fits for the process needed by the organization. INTRODUCTION Sea Gull Airframes Inc. 4. INC. becomes the host and the main supplier of the biggest aircraft industries. the following information has been observed and gathered: 1. has been in the long run operating its business and exposed to its numerous competitors to produce high-quality aircraft superstructures and airframe components. there are still some points of lapses that come into their flight. BACKGROUND Sea Gull Inc. billings and processes. Usage of periodic inventory system and values at lower of FIFO cost or market. 2. where Sea Gull Inc.SEA GULL AIRFRAMES. This company has known for its sophisticated services that offers to designs and manufactures aircraft superstructures and airframe components. 2013 are satisfied and were properly taken. As the audit team conducts its procedures. All invoices needed for the examinations are located 5. Pricing and extension test revealed that all 50 inventory items that has been tested in details are said to be correct except for Items A to G presented above. III. Such high as Sea Gull Inc. is experiencing mismanagement of their inventory for the counts. are believed to be misstated. Despite of its numerous competitors Sea Gull Inc. and still continuing its market expansion around the globe. The Audit team soon hired by the Sea Gull Inc. 3.

INC. Stated that the Sea Gull Inc.SEA GULL AIRFRAMES. Industrial Hand Drills F. As supporting documents for these inventories.000 Voucher 11-81 500 yards× $ 9. AUDIT OF INVENTORY IV.000. L37 spars B. L803 Steel Leaf Springs The inventory for steel leaf spring were inaccurate.50 per yard will be the composition of the ending inventory for the said R01 metal ribs. FINDINGS A.750 $14.500 yards of R01 metal ribs inventory items are said to be possibly misstated. Client’s Record $15.00=$ 10. In comparison to the client’s record. the amount of the inventory as of December 31. DISCUSSIONS A.750. 50% of the material in ending inventory were not accounted for because the record shows that 40(pair) springs which should have been 80 springs each is multiplied by $69. This clearly shows that there is an overstatement for the inventory of R01 metal ribs amounting to $250.50=$ 4.00.000 Voucher 12-61 1.750 Overstatement = $250 The records of the client showed that the cost of ending inventory of R01 metal ribs is amounted to $15. Moreover. it clearly shows that the inventory for the first 1. the amount WAREHOUSE DEPARTMENT Page 7 .000 yards of R01 metal ribs with the price of $10 per yard will be allocated at the voucher 12-61 and the remaining 500 yards of R01 metal ribs at the voucher number 11-81 at the price of $9. 2013 should be $14. D. the invoice shows that these inventories came from the voucher number 11-81 and 12-61 disregarding the voucher number 12-81 because it was later received after 2013 year-end. R01 Metal Ribs The 1. B68 Metal formers C. St26 Struts E. uses FIFO method as for the valuation of their inventories.000 yards× $ 10.

L37 spars Risk: Recommendation:   B. AUDIT OF INVENTORY showed in the ending inventory $267 have been misstated instead of recording $2670 if 40 springs is multiplied by $69. R01 Metal Ribs Risk:  Recommendation: The management might be doing fraud on behalf of its own WAREHOUSE DEPARTMENT Page 8  Sea Gull Inc. the amount is understated by $5. G. INC. Therefore. such as the use of .00 each = $5.520). ASSOCIATED RISKS AND RECOMMENDATION A. B68 Metal formers Risk: Recommendation:   C.00 The amount showed in the client’s ending inventory record of 40 pairs of steel leaf spring amounted to $267 which should have been computed as (40 pair x 2 = 80 springs x $69. V16 Fasteners B.244. AUDIT SCHEDULE SUMMARY V. should use proper documentation.SEA GULL AIRFRAMES.

  voucher packets.SEA GULL AIRFRAMES. where in they are making it more profitable in the face of the statement which is actually not just to attract potential investors and creditors to aid the distress that they are experiencing. Shift to perpetual inventory valuation. In this way. Industrial Hand Drills Risk: Recommendation:   F. receiving Report and the Invoice from the vendor. St26 Struts Risk: Recommendation:   E. should improve controls to ensure the accuracy of recorded inventory Recalculate value of inventory by multiplying inventory records by the purchase price of the individual items Physically segregate access and secure storage areas against unauthorized admission by identification pass G. the organization could manipulate their financial statements. V16 Fasteners Risk: WAREHOUSE DEPARTMENT Recommendation: Page 9 . INC. Reconciliation of Purchase Order. This would help the maintenance of the Inventory account records such as the use of stock cards to maintain the summary of the inventories inflow and outflow. AUDIT OF INVENTORY organization. L803 Steel Leaf Springs  Risk: Failure to record the correct amount of the materials may trigger manipulation of inventory counts which can become a loophole for the employees to commit fraud by misappropriating the inventory for his benefit    Recommendation: Sea Gull Inc. D.

INC. AUDIT OF INVENTORY  WAREHOUSE DEPARTMENT  Page 10 .SEA GULL AIRFRAMES.