Reference no: EM132694713

The slow sales in the pop-up furniture stores have led management to conclude that LLI should not continue its relationship with BTI. Therefore, LLI is trying to sell off the remaining inventory as quickly as possible so that it can redeploy the ground-level space in a more profitable way. You notice that the promotional material for the sale claims "Everything is 50% to 75% off!"

• The draft 2019 financial statements report $600,000 in furniture inventory on hand. Your notes state that an inventory count was performed on December 31, 2019, and there were no issues noted with the cost or quantities reported by LLI. You have a co-op student with you on the LLI engagement and have been giving her opportunities to apply the knowledge she has gained in university. You asked her to create list of procedures that will address the valuation assertion for the furniture inventory using audit data analytics (ADAs). She is excited to present her list of procedures to you, which she developed using her audit textbook and the firm's audit manual to help her. Her list is as follows:

ADA procedures for inventory valuation:

1. Use the financial statements to calculate inventory turnover and days sales in inventory ratios for 2019 and compare to industry norms. Discuss the trend with management.
2. Using inventory purchase data, recalculate aging of BTI inventory, based on the date of purchase, to identify any slow-moving inventory. This can help identify inventory that is slow to sell and may be reported at an amount above net realizable value (NRV). Discuss findings with management.
3. Using sales data for the year and the period since year end, review volume of sales trends for the partnership with BTI on a month-to-month basis, including the month immediately following year end. Declining sales trends would indicate a possible issue with inventory valuation.
4. Combine the use of sales data and inventory purchase data to compare the purchase price for items in inventory to the most recent selling price for the same inventory items. Analyze the data to identify any items that have been sold at a price below the purchase cost, indicating that the inventory may be recorded at an amount above its NRV.

Problem 1: Review the ADA procedures, are these procedures appropriate at this stage of the audit?

Problem 2: If so, what other considerations there may be using ADA?