Conducting a Physical Inventory Observation of McIntyre Organics: Turning the Classroom into a Warehouse

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Abstract

Staff auditors will likely be expected to complete physical inventory observations during their initial years in public accounting. Because of the “hands-on” nature of these procedures, it is often difficult to illustrate such auditing concepts in classroom settings. We developed an interactive case that can be easily implemented in a classroom setting which enables students to experience a mock inventory observation. This case is ideal for use in undergraduate or graduate auditing classes. Students assess the risk of material misstatement related to inventory, consider which location(s) should be subject to testing procedures, implement directional tests to verify actual inventory quantities, consider procedures for inventory held by third parties, and assess the likelihood of losses related to obsolete or damaged goods. This case illustrates material that can be tested on the CPA exam and tasks that auditors will likely complete during their first few years on the job. These materials foster student success, both in preparing them for the CPA exam and for their careers in public accounting.

Authors

• Michael Ozlanski, Susquehanna University

• Suzanne Marie Seymoure, Saint Leo University