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QUESTION

At the beginning of the audit, Jan Wheeler, the in-charge senior, told you that the management team of BizCaz has always been helpful and friendly.

You have been with Zaird & Associates for approximately three months and are completing your work on the BizCaz audit. BizCaz produces pullover knit shirts to address the business casual market for both men and women. Although your experience has been limited , an unexpected staff resignation has resulted in your working directly with the engagements in-charge senior on the inventory. This has been a learning experience for you, because you have helped perform various tests of controls which may be summarized as indicating that internal control over inventory (including the perpetual records) seems strong. It is your impression that those tests resulted in a decrease in substantive procedures, thereby allowing a particularly efficient audit.

     At the beginning of the audit, Jan Wheeler, the in-charge senior, told you that the management team of BizCaz has always been helpful and friendly. Throughout the audit, you have found the situation to be as good as described. In fact, BizCaz allows each auditor to purchase up to three shirts at a particularly attractive price of $12 per shirt, the cost for which employees may purchase shirts. The shirts have a market value of around $50, although direct labor and material costs of each shirt are only $10.

     Near the conclusion of the audit, after you and the other three staff members paid the controller and told him your sizes, he walked to the warehouse, removed 12 shirts from the appropriate piles, and brought them out. That evening you gave the situation some thought. On the one hand, the company didn't lose any money on your purchase of the shirts, but on the other hand, you would never been able to purchase such high-quality clothes for such a low price.

1. Is it acceptable to purchase these shirts from the audit client in this manner?

2. Discuss the effect of any information presented in the case on the adequacy of the audit.

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