Major deficiencies that took place during the

audit process
Deficiency in the audit Why it was a deficiency?
 The new division should have been audited more  It came to Merkle through merger and was likely
thoroughly. to have different operating characteristics and
internal controls.

 The determination that the errors in the sample  The errors should have been projected from the
were immaterial was improper. sample to the population, and the projected error
should have been compared to tolerable
misstatement, after considering risk.

 The obsolescence problem uncovered in the audit

should have been evaluated carefully to consider
the implications on potential obsolescence of
inventory.
 Deficiency in the audit
 Inadequate supervision and review
 Auditor should have been aware of the risk
of obsolete inventory.
Why it was a deficiency?
 Given the new personnel on the
engagement, Black apparently failed to
adequately supervise and review the work
of assistants.
 Had the auditor used analytical procedures
the decline in sales should have warned the
auditor to a potential decline in profits and
obsolete inventory.