In preparing for an audit of the retail footwear division of a major retail organization,the auditor gathered the following information about the organization's stores: $$\begin{array} { l r r r r }
& \text { All } & \text { Northeast } & \text { Southwest } & \text { Mid-Central } \
& \text { Stores } & \text { Region } & \text { Region } & \text { Region } \
& \$ 736,000 & \$ 840,000 & \$ 760,000 & \$ 630,000 \
\text { Average sales per store } & \$ 375,000 & \$ 420,000 & \$ 325,000 & \$ 395,000 \
\text { Average cost of goods sold per store } & 48 & 13 & 18 & 17 \
\text { Number of stores } & 1,800 & 2,200 & 1,850 & 1,550 \
\text { Average square feet per store } & \$ 137,000 & \$ 152,000 & \$ 140,000 & \$ 122,000 \
\text { Average sales per full-time employee } & \$ 98,000 & \$ 102,000 & \$ 82,000 & \$ 112,000 \
\text { Average wage related expense per store } & \$ 35,000 & \$ 285,000 & \$ 320,000 & \$ 115,000
\end{array}$$ Management has centralized purchasing and uses a model based upon previous year's sales with adjustments for trends in the market place,e.g.,the trend to more casual shoes.A staff auditor has suggested that the centralized purchasing may be one of the reasons for the lower level of profitability in the Mid-Central Region.Which of the following would be the best single audit procedure to address the staff auditor's assertion?
A)Take a sample of receiving documents at stores and trace to purchase orders to determine the length of time between the purchase and delivery of the goods.
B)Interview store managers in the Mid-Central Region to determine their attitude toward centralized purchasing.
C)Perform an inventory count at selected stores in the Mid-Central Region and determine if adjustments are needed to the perpetual records.
D)Perform a product-line analysis of sales and purchases in the Mid-Central Region and compare with other regions.

Question

In preparing for an audit of the retail footwear division of a major retail organization,the auditor gathered the following information about the organization's stores: $$\begin{array} { l r r r r } 
& \text { All } & \text { Northeast } & \text { Southwest } & \text { Mid-Central } \
& \text { Stores } & \text { Region } & \text { Region } & \text { Region } \
& \$ 736,000 & \$ 840,000 & \$ 760,000 & \$ 630,000 \
\text { Average sales per store } & \$ 375,000 & \$ 420,000 & \$ 325,000 & \$ 395,000 \
\text { Average cost of goods sold per store } & 48 & 13 & 18 & 17 \
\text { Number of stores } & 1,800 & 2,200 & 1,850 & 1,550 \
\text { Average square feet per store } & \$ 137,000 & \$ 152,000 & \$ 140,000 & \$ 122,000 \
\text { Average sales per full-time employee } & \$ 98,000 & \$ 102,000 & \$ 82,000 & \$ 112,000 \
\text { Average wage related expense per store } & \$ 35,000 & \$ 285,000 & \$ 320,000 & \$ 115,000
\end{array}$$ Management has centralized purchasing and uses a model based upon previous year's sales with adjustments for trends in the market place,e.g.,the trend to more casual shoes.A staff auditor has suggested that the centralized purchasing may be one of the reasons for the lower level of profitability in the Mid-Central Region.Which of the following would be the best single audit procedure to address the staff auditor's assertion?
A)Take a sample of receiving documents at stores and trace to purchase orders to determine the length of time between the purchase and delivery of the goods.
B)Interview store managers in the Mid-Central Region to determine their attitude toward centralized purchasing.
C)Perform an inventory count at selected stores in the Mid-Central Region and determine if adjustments are needed to the perpetual records.
D)Perform a product-line analysis of sales and purchases in the Mid-Central Region and compare with other regions.

Quizplus · Accepted Answer

The best audit procedure to address the staff auditor's assertion is to perform a product-line analysis of sales and purchases in the Mid-Central Region and compare with other regions. This will allow the auditor to determine if the centralized purchasing model is leading to a lower level of profitability in the Mid-Central Region compared to other regions. By comparing sales and purchases for different product lines, the auditor can identify any trends and anomalies that may indicate issues with centralized purchasing. Other audit procedures, such as sampling receiving documents or performing an inventory count, may provide useful information but are less likely to directly address the staff auditor's assertion about centralized purchasing. Interviewing store managers may also provide helpful insight but would not provide specific data on the impact of centralized purchasing.

In Preparing for an Audit of the Retail Footwear Division