Exam 14: Auditing Inventory Processes: Tracking and Costing Products in the Land Development and Home Building Industry

Residential home building companies are primarily involved in which of the following business activities?

When well-maintained perpetual inventory records are verified periodically by the client by comparisons with physical counts, what is the appropriate timing of the auditor's observation procedures?

The following tests of controls are being performed on the audit of Hoppes Homes, Inc. For each test of control, fill in the table to indicate the corresponding control and the purpose of the control. Test of Control: Description of Control: Pupose of Control: 1. Tour the client's storageand production facilities and observe the security features in use for inventory. 2. Select a sample of inventory items and examine them for proper category of the records. 3. Select a sample of overhead additions made to the cost accounting records and recalculate for accuracy and consistency with company policy. 4. Review the inventory records for evidence that they have been adjusted. based on the results of the physical count. 5. Inspect documents identifying any decline in inventory value and recalculate for accuracy and consistency with company policy.

Homebuilders need not be concerned with unasserted claims because future risks do not require disclosure in the financial statements.