Zetta Manufacturing Ltd. is engaged in the production of textile machinery components. During the course of audit, the auditor observed fluctuations…

The auditor needs to perform analytical procedures to obtain audit evidence as to the overall reasonableness of purchase quantity and price. Such procedures may include: Consumption Analysis: Auditor should scrutinize raw material consumed as per manufacturing account and compare the same with previous years along with closing stock levels. In case of any significant variations, the auditor should seek explanations from management and corroborate the same with supporting evidence. Stock Composition Analysis: Auditor should obtain reports from management showing composition of stock, i.e., raw materials as a percentage of total inventory, and compare the same with previous years. Significant deviations should be investigated and appropriate explanations obtained. Ratio Analysis: Auditor should compare relevant ratios such as creditors turnover ratio and stock turnover ratio of the current year with those of previous years. Any abnormal fluctuations may indicate issues relating to purchase quantity, pricing, or recording of transactions. Quantitative Reconciliation: Auditor should review quantitative reconciliation of closing stock with opening stock, purchases, and consumption. This helps in verifying the completeness and accuracy of purchase quantities. By performing the above analytical procedures and investigating significant variations, the auditor can obtain reasonable assurance regarding the correctness and overall reasonableness of purchase quantity and price, thereby supporting the audit opinion.