You as the Inventory Manager for Computer City An issue of key importance in auditing inventory is that the auditor be present when the physical inventory count is made and that no advance notice of the physical inventory be provided to management. A major fraud discovered at McKesson & Robbins company in 1938 motivated the accounting profession to change audit procedures to include the physical observation of inventory. Prior to that time, auditors avoided responsibility for determining either the physical existence or the accuracy of the count of inventory. In 1937 McKesson & Robbins reported assets of $87 million of which approximately $10 million of inventory was subsequently determined to be nonexistent.

You should support the auditor's access to the physical inventory. It is Computer City's responsibility to allow access to the physical inventory or the auditor may not issue an unqualified audit opinion.

You as a Buyer for a Retail Business (p. . . .) If Ace Hardware maintains perpetual inventory records, these records would provide a host of information that would be useful to your purchasing decision. From the perpetual inventory records, you can determine the number, brand, and type of grills currently on hand and the number of each sold in prior summer seasons. This information will be very useful in estimating the merchandise needs for the current season.

If Ace Hardware does not have perpetual inventory records, you would be forced to make your decision without this information about inventory on hand and prior sales, or to spend a significant amount of time developing the information.