You are a member of a team involved in the audit of inventories of ABC Distribution Company. A computer-based inventory system is used by the company. You are provided with two data files (in the Sample Data Files folder): INVENT.FIL Inventory Master File as at December 31 2000. STKTAKE.FIL Inventory Stocktake File as at December 31 2000. STKTAKE.FIL will be used to update the master file and report necessary adjustments as at December 31 2000. This means that stocktake figures will replace recorded quantities. Adjustments to book values will be written off against profit. You are to produce an audit memorandum to the partner-in-charge dealing with each of the following issues. Your memorandum should cover each issue and include (where appropriate) a summary of findings similar to: Issue Audit Objective Number of items Total book value % of population Materiality You should support your findings with appropriately labelled and totalled reports generated with the ACL package. Report headers should identify the client, the year-end, your name and the title of the report. All reports should be sorted in a manner which focuses attention on the higher book value items. Present your reports and extracts from logs in the appendices accompanying your memorandum. You may assume that materiality is 5 per cent of the current inventory balance. 1. Stocktake Results (a) Details and values of products not counted. (b) Significant adjustments, ie. adjustments (positive/negative) in excess of $150. (The adjustment is calculated as BOOK – [COUNTQTY * AVCOST]). (c) Total value of adjustments to inventory book value. 2. Potentially Obsolete Inventory Consider: (a) Products selling below average cost. (b) Products with zero selling prices. (c) Products with excessive holdings (over 6 months sales). (d) Products that have not moved in the past 6 months. (e) Total value of potentially obsolete inventory (produce a consolidated report with no duplicates indicating which of the above criteria were met for each product). 3. Valuation of Inventory Consider: (a) Products where book value differs from book quantity on hand extended at average cost. (b) Variances between average cost of inventory counted and standard cost. (c) Total value of inventory counted at average cost and standard cost. 4. Other Issues Consider: (a) A summary of the different product groups in terms of quantity on hand and book values. (b) The range of book values and the distribution of book values in the master file, including the number of products falling into particular intervals (ie. Stratification).