Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 37 views

    Audit of Inventory

    Uploaded by

    Alvin Joy
    The audit of inventory is often complex due to its size on the balance sheet, multiple locations, and difficulties in observation and valuation. The auditor must observe the physical inventory count, test pricing and compilation of inventory values, and ensure inventory is properly valued and controls are functioning effectively. Key areas of focus include physical controls, perpetual inventory records, unit costing, cut-off of purchases and sales, and compliance with costing methods and valuation standards.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Audit of Inventory

    Uploaded by

    Alvin Joy
    37 views14 pages
    The audit of inventory is often complex due to its size on the balance sheet, multiple locations, and difficulties in observation and valuation. The auditor must observe the physical inventory count, test pricing and compilation of inventory values, and ensure inventory is properly valued and controls are functioning effectively. Key areas of focus include physical controls, perpetual inventory records, unit costing, cut-off of purchases and sales, and compliance with costing methods and valuation standards.

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The audit of inventory is often complex due to its size on the balance sheet, multiple locations, and difficulties in observation and valuation. The auditor must observe the physical inventory count, test pricing and compilation of inventory values, and ensure inventory is properly valued and controls are functioning effectively. Key areas of focus include physical controls, perpetual inventory records, unit costing, cut-off of purchases and sales, and compliance with costing methods and valuation standards.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    37 views14 pages

    Audit of Inventory

    Uploaded by

    Alvin Joy
    The audit of inventory is often complex due to its size on the balance sheet, multiple locations, and difficulties in observation and valuation. The auditor must observe the physical inventory count, test pricing and compilation of inventory values, and ensure inventory is properly valued and controls are functioning effectively. Key areas of focus include physical controls, perpetual inventory records, unit costing, cut-off of purchases and sales, and compliance with costing methods and valuation standards.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 14

    AUDIT

    INVENTORY
    AUDIT OF INVENTORY

    • Often the most complex and time-consuming. Why?


    ⚬ Often the largest account on the balance sheet.
    ⚬ Often in different locations, making physical control and counting difficult.
    ⚬ Often difficult for auditors to observe and value (ex: jewel, electronics
    parts, chemical)
    ⚬ Valuation is also tricky when the estimation of inventory obsolescence is
    necessary and when manufacturing costs must be allocated to inventory.
    ⚬ Several acceptable inventory valuation methods
    AUDIT OF INVENTORY

    • Six functions make up the inventory and warehousing cycle:


    ⚬ Process purchase orders
    ⚬ Receive raw materials
    ⚬ Store raw materials
    ⚬ Process the goods
    ⚬ Store finished goods
    ⚬ Ship finished goods
    AUDIT OF INVENTORY
    AUDIT OF INVENTORY
    AUDIT OF
    INVENTORY
    AUDIT OF COST ACCOUNTING

    • There are two broad categories of controls:


    ⚬ Physical controls over raw materials, work-in-process, and finished goods
    inventory
    ⚬ Controls over the related costs

    • Perpetual inventory master files maintained by persons who do not have custody
    of or access to assets are a useful control
    AUDIT OF COST ACCOUNTING

    • Tests of Cost Accounting: The auditor is concerned with four aspects of cost
    accounting:
    ⚬ Physical controls over inventory
    ⚬ Documents and records for transferring inventory
    ⚬ Perpetual inventory master files
    ⚬ Unit cost records
    SUBSTANTIVE ANALYTICAL PROCEDURES
    PHYSICAL OBSERVATION

    • Inventory Observation Requirements for the Auditor:


    ⚬ Be present at the time the client counts its inventory.
    ⚬ Observe the client’s counting procedures.
    ⚬ Make inquiries of client personnel about their counting procedures.
    ⚬ Make their own independent tests of the physical count
    PHYSICAL OBSERVATION

    • Controls Over Physical Count


    • Audit Decisions:
    ⚬ Timing
    ⚬ Sample Size
    ⚬ Selection of Items—should be careful to:
    ￭ Observe the counting of the most significant items.
    ￭ Inquire about items that are likely obsolete or damaged.
    ￭ Discuss with management the reasons for excluding any material items.
    • Physical Observation Tests:
    PRICING AND COMPILATION

    • Must verify that the physical counts of inventory are correctly priced and
    compiled.
    ⚬ Inventory price tests include tests of the client’s unit prices to
    determine whether they are correct.
    • Pricing and Compilation Controls: Standard cost records that indicate
    variances in material, labour, and overhead costs are helpful to evaluate
    the reasonableness of production records.
    PRICING AND COMPILATION

    • Valuation of Inventory concerns:


    ⚬ Must be in accordance with accounting standards.
    ⚬ Must be consistent from year to year.
    ⚬ Inventory cost versus market value (replacement cost or net realizable value)
    must be considered.
    • Pricing Purchased Inventory
    • Pricing Manufactured Inventory
    • Cost or Market
    INTEGRATION
    OF THE TESTS

    You might also like