Due Diligence on Fast-Fashion Inventory Through Data Querying

Discussant comments Bob Cuthbertson, CaseWare IDEA Inc.

Audit approach and lessons learned

Key: • Normal – in both the case and inventory audit approach• Italics – in the case but not in inventory audit approach• Bold – in inventory audit approach but not in the case

Audit approach and lessons learned Existence

• Review inventory count procedures• Observe the count• Verify payment• “Block check” sales based on purchases

Completeness• Perform cut-off tests• Verify inclusion of all purchases in inventory• Review returns policy and examine sales

records for returns volumes

Audit approach and lessons learned Rights

• Verify purchases of inventory• Review vendor invoices to determine title conveyed• Review sales contracts to determine right to return

merchandise Valuation

• Test costing• Test for obsolete items

• Compute inventory turnover• Review markdown policy for appropriateness• Analyze sales by product line, location• Check extensions and footing; trace to GL

Presentation• Valuation method appropriate?

Case logic and data files

Need sales data

Selecting the software tool

Universe of audit software “Less cumbersome to use” Why audit software?

Selecting the software tool Universe of audit software “Less cumbersome to use” Why audit software?

• Imports• Audit functions• Preserve data files• Readily available

Structured vs. Unstructured Testing

Walk before running...

General

Role of data analysis in the audit process Queries