Laramie Wire Manufacturing Case
Case # 1
Laramie Wire Manufacturing: Using Analytical Procedures in Audit Planning
February 18, 2011
Laramie Wire Manufacturing, a medium sized company, is planning an initial public offering of its stock in the next two to three years. Laramie operates in a single 500,000 square foot building complex. Laramie buys copper rod and plastic materials to produce insulated copper wiring. The building complex is composed of 3% office space, 57% production area, 15% shipping and receiving area, and 25% finished goods and raw materials inventory warehousing area. Laramie produces several different types and gauges of insulated copper wire. All the different products Laramie manufactures use the same raw materials, meaning raw material inventory is stored in one location. Within the storage location insulated copper wire is stored on stackable spools with approximately 500,000 feet of wire per spool. The copper rod inventory is stored on 5 feet tall and 6 feet by 6 feet non stackable pallets that hold 1,500 pounds of copper rod. While plastics inventory is stored in 4 feet tall stackable barrels containing approximately 350 pounds of plastic per barrel. Laramie is a first time client of the firm, and has hired the firm to perform a financial statement audit to prepare for the initial public offering. The senior auditor has been assigned to auditing inventories in the planning stages of the audit, and must conduct analytical procedures. A quick visual examination of inventories revealed no problems and well organized production areas. Under the Public Company Accounting Oversight Board there are several auditing standards that apply to the audit of Laramie’s inventory accounts, and the conduct of analytical procedures. AS No. 9, Auditing Planning, is the first standard that applies by stating that, “the planned nature, timing, and extent of tests of controls and substantive procedures….complies with PCAOB standards.” Secondly, AS No. 14,
Laramie Wire Manufacturing: Using Analytical Procedures in Audit Planning
February 18, 2011
Laramie Wire Manufacturing, a medium sized company, is planning an initial public offering of its stock in the next two to three years. Laramie operates in a single 500,000 square foot building complex. Laramie buys copper rod and plastic materials to produce insulated copper wiring. The building complex is composed of 3% office space, 57% production area, 15% shipping and receiving area, and 25% finished goods and raw materials inventory warehousing area. Laramie produces several different types and gauges of insulated copper wire. All the different products Laramie manufactures use the same raw materials, meaning raw material inventory is stored in one location. Within the storage location insulated copper wire is stored on stackable spools with approximately 500,000 feet of wire per spool. The copper rod inventory is stored on 5 feet tall and 6 feet by 6 feet non stackable pallets that hold 1,500 pounds of copper rod. While plastics inventory is stored in 4 feet tall stackable barrels containing approximately 350 pounds of plastic per barrel. Laramie is a first time client of the firm, and has hired the firm to perform a financial statement audit to prepare for the initial public offering. The senior auditor has been assigned to auditing inventories in the planning stages of the audit, and must conduct analytical procedures. A quick visual examination of inventories revealed no problems and well organized production areas. Under the Public Company Accounting Oversight Board there are several auditing standards that apply to the audit of Laramie’s inventory accounts, and the conduct of analytical procedures. AS No. 9, Auditing Planning, is the first standard that applies by stating that, “the planned nature, timing, and extent of tests of controls and substantive procedures….complies with PCAOB standards.” Secondly, AS No. 14,
Cited: Messier, William F., Glover, Steven M., Prawitt, Douglas F. Auditing & Assurance Services: A Systematic Approach. 7th ed. New York, NY. McGraw Hill, 2010. Wild, John J. Financial Accounting: Information for Decisions. 4th ed. New York, NY. McGraw Hill, 2008.