Reference no: EM133363426

Case Study: Carl's Computers imports computer hardware and accessories from China, Japan, and South Korea. It has branches in every U.S. capital city, and the main administration office and central warehouse are in Chicago, Illinois. There is a branch manager in each store plus a number (depending on the size of the store) of full-time staff. There are also several part-time staff who work on weekends since the stores are open both Saturday and Sunday. Either the branch manager or a senior member of the full-time staff is on duty at all times to supervise the part-time staff. Both part-time and full-time staff members are required to attend periodic company training sessions covering product knowledge and inventory- and cash-handling requirements.

The inventory is held after its arrival from overseas at the central warehouse and distributed to each branch on receipt of an inventory transfer request authorized by the branch manager. The value of inventory items ranges from a few cents to several thousand dollars. Competition is fierce in the computer hardware industry. New products are continuously coming onto the market, and large furniture and office supply discount retailers are heavy users of advertising and other promotions to win customers from specialists like Carl's Computers. Carl's Computers' management has faced difficulty keeping costs of supply down and has started to use new suppliers for some computer accessories such as printers and ink.

Required:

• Evaluate the inherent risks for inventory for Carl's Computers. How would these risks affect the accounts?
• Identify strengths and weaknesses in the inventory control system.
• Comment on materiality for inventory at Carl's Computers. Is inventory likely to be a material balance? Would all items of inventory be audited in the same way? Explain how the auditor would deal with these issues.