The Annual Audit Dilemma

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By Chris Wood, CPA - My outside auditors were in all last week performing the various tasks associated with issuing the “audited” financial statements. I’ve been through these endless times, but it’s still unnerving. I dread audit time. What did I miss? What question will they ask that I can’t answer? About the hardest thing they came up with this year was “How do you explain the variance in inventory turns between the years?” I was taken aback. I don’t know. Why have my turns changed so drastically? I’m sure I sit around at the end of everyday agonizing over my inventory turns and why they are different. I know, I’ll ask the plant manager. He’s got his finger on the pulse. Surely he’ll know why my inventory turns have changed.

“Hey Jeff, What’s up? By the way the auditors were asking about inventory turns. Do you know they changed so drastically?” I politely asked.

“Get out of my office bean counter. I’m too busy to be bothered with such trivial matters,” he rudely responded.

“OK Jeff, I’m sorry. Oh yeah, I approved your expense report. I’m going to get that paid” I responded, and then under my breath I muttered “in 2015”. He’ll never learn.
Still I need to know why my inventory turns have changed. I know, I’ll ask the IT manager. He’s always creating reports about this and that with the manufacturing software.

“Hey Nick, How ya doin’? The auditors want to know why our inventory turns changed so drastically. I told them you’d know for sure. You probably already have a report that explains it all. Don’t you?”

“No, I don’t.” Nick dryly retorted. “Would you like to see the bookings for the next three months?”

“Yeah go ahead and email that to me.” Still, I need to tell the auditors something. If I can’t answer that, they’ll think something else is wrong. They’ll expand their testing. They’ll be here forever. I’ve got to come up with something.

My auditors’ names are Josh and Courtney. Whatever happened to Bill and Tom or Karen and Debbie. I must be getting too old when I speculate over the names of my auditors. “Hey Josh, I noticed that you used the labor and overhead content in my inventory to calculate the theoretical inventory turns. Be advised that we reduced our labor by about 2,000 hours when we moved our stamping operation to Tennessee. We now purchase that material that we used to make. Also that new automated cell we put in this year reduced labor by another 1,500 hours. That’s probably why you’re calculating that variance”.

“OK, Thanks.” He said as he documented his work papers. That’s it? I can’t wait until next year’s audit.

Next time – Pivot tables. Accountants that know how to use pivot tables use them often.


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