Reference no: EM133939818

Audit of Inventory: Keegan Murphy Cattle Ranch

Overview
This case focuses on the inventory process in the context of a cattle ranch. Students will learn about how companies and their auditors perform periodic inventory counts, with a focus on the innovative practice of using drones and automated counting software to complete the inventory process. While the case uses biological assets (cattle) as an example for using drones in counting inventory, it also encourages students to consider the use of drones in other, more traditional inventory counts, such as in a warehouse.

Background
You are an auditor tasked with verifying the inventory of Keegan Murphy Cattle Ranch (KMCR). KMCR owns a large cattle ranch, and the herd represents an important biological asset (i.e., living animals) of KMCR. It is, therefore, crucial that the company maintains an accurate count of the inventory. Each year, KMCR performs an inventory count as it moves the cattle from their winter pasture to their summer pasture. The cattle are not easy to count in this process because there are large numbers of them, they continually move around, and they can be hard to distinguish from one another. Get instant assignment help from top tutors.

The traditional method of counting the cattle is to have cowboys and dogs herd them through a narrow chute, where two people count the animals as they pass through (the counters). This process is time-consuming, stressful for the animals, and potentially inaccurate due to the fast movement of the cattle.

KMCR reported that it sent 2,500 cattle to the winter pasture (these cattle arrived on trucks two months earlier, and this count can be considered correct). While in the winter pasture, the ranch hands found the carcasses of four cattle (likely killed by predators), and two additional cattle were sick and could not make the trip to the summer pasture. Thus, the ranch hands expected 2,494 cattle in their count based on the current inventory records; however, it is possible that other cattle wandered away or were killed by predators and the ranch hands were unaware of their disappearance. The two counters initially reported counting 2,489 and 2,501 cattle. After deliberation, they agreed to make the final count 2,495 cattle. KMCR management adjusted the accounting inventory records accordingly.

Part I: Imagine Better and Learn More
Using Drone Technology and Automation to Innovate Inventory Management and Auditing of Inventory

Required
KMCR is interested in making the inventory count process more efficient and less stressful for the cattle. It is also interested in improving the accuracy of the inventory data, improving the timeliness of the reporting, and having the process documented in a better manner. KMCR has hired you, an outside consultant, to provide information about using drone technology and automated counting software for the physical inventory count instead of using the traditional process.