Briefly explain five weaknesses in the year-end inventory

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Question - Aqira & Co has been appointed as company auditor for Portmeirina Sdn Bhd (PSB). The company manufactures high quality of tableware for local and international market. As the senior auditor in charged, you have attended the year-end inventory count at the company's warehouse. Hafiz, a warehouse manager is assigned as inventory count supervisor. PSB maintains an integrated computerised inventory system that shows the inventory held at any given point in time. At the year-end inventory count, the various categories of inventory and the closing balance are printed from the system and submitted to Hafiz. The count instruction is given to auditor and Hafiz a day before the count was due to take place. Ten selected staff from administration, payroll and marketing department were involved as counter. They are divided into team of two where they are not allowed to choose their partner. Each team is assigned to their allocated area to count the inventory. Hafiz has given short briefing to all staff involved few minutes before the inventory count begin.

During the count, the warehouse will continue to receive supplies and to ship finished goods. The same categories of inventory were sometimes found in several different areas and some inventory was incorrectly labelled. Sometimes inventory was difficult to find because it is not in the allocated area. A pre numbered blank inventory sheet filled up by each team using permanent marker. Any damaged or broken item found will be recorded on the remark column of the inventory sheet. The completed inventory sheets is submitted to Hafiz at the end of the inventory count for reconciliation of the inventory quantities recorded at the count to the computerised records.

Required -

(a) Briefly explain FIVE (5) weaknesses in the year-end inventory count at Portmeirina Sdn Bhd which could lead to misstatement in the financial statements.

(b) Give recommendations for future years on how to improve the inventory count system for each of the weaknesses identified in (a).

Reference no: EM132991260

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