You are the manager-in-charge (MIC) of the annual audit of Long Beach Electronics (LBE) Inc., which makes small appliances for the California market. When your audit team audit LBE's inventory, your staff experienced the following issues:
Jack, the senior auditor in charge of inventory observation, noticed that on the inventory observation date, 4 trucks were parked at the shipping dock, fully loaded with some appliance products from the finished goods warehouse. LBE's assistant controller told Jack that those are items ready to be shipped to Tal-mart, its largest customer. The goods on the trucks were not included in the ending inventory.
When Jack walked through LBE's giant finished goods warehouse, he noticed that, on the rack of row #56, many cartons were old and covered with dust. He stopped and asked about those cartons. Steve, the plant manager, told him that those are small appliances made in early 2014. Steve promises that eventually all the goods will be sold when LBE gives some price incentives to its distributors.
Joe is an experienced cost accountant in your team. Joe reviewed LBE's cost accounting system which generates unit production cost for different products. He noticed that the costs of the firm's electrical engineering department was treated as a periodic expense in previous fiscal years, but was treated as one source of manufacturing overheads in FY2014.
Required:
Please describe additional audit procedures that the audit team should perform in the each of the scenario. Please also highlight probable misstatements in LBE's financial statements.