Case Study: Your group “HAUD1”, part of HAUD Group P/L, has been asked to conduct an audit for a manufacturing company “Bashers Aussie Gear P/L” (BAG). A significant part of the audit will involve verifying the physical count, cost and summarization of inventory as the inventory is pledged as collateral (for a loan) to the NABWest bank. One of your group members has reviewed BAG’s inventory count procedures and has advised BAG’s Managing Director that the method of counting inventory on different days at different locations (there are 14 sites) was not appropriate and highly undesirable. The MD responds by stating that it was impractical to count all inventories on the same day at all sites due to limitations with staff/personnel numbers as well as satisfying customers. After discussion, it is agreed to allow BAG to continue the practice BUT the MD is required to sign a statement to the effect that there was no practicable option.
Your group (with the aid of other staff) then had one person at each of the 14 sites to carry out an inventory audit, auditing both the inventory count procedures and the actual count for a one-off audit.
About a year later, HAUD1 learned that there was a real problem. Management reporting to the MD had covered up mismanagement by overstating inventory, hiding inventory losses and obsolete inventory. What they had done was transport inventory from one site to another at night, after it had been counted at the first site. This meant that the same inventory was being counted more than once, sometimes a number of times. The accounting records were unable to show that the illegal transfers had occurred.
BAG and the NABWest bank sued HAUD1.

Q1: What defence would your group use to counter the legal action?
Q2: How will you go about determining exactly how much inventory is on hand, what is obsolete and what is lost?
Q3: What procedures will your group recommend in order to ensure that this does not occur again? What has been learnt?

You are required to prepare a report for your CEO (of HAUD) of;
1) how you have managed BAG in the past year,
2) your recommendations as how to audit in the future (what, when and how)
3) What areas you think can be improved based on what has occurred. You can think policy!
4) Should HAUD take action against BAG and if so, why?

I am confuse about this question solution . I am hopeful to get this question answer in
Short.if it is possible. Looking for your response.thank you .

We are not here to just give you solutions to the questions, but help you to understand them. You should post any attempts you have made to answer it or ask something more specific about what you don't understand.