Work-in-process testing. If you have a significant amount of work-in-process WIP inventory, the auditors will test how you determine the percentage of completion for WIP items. Inventory allowances. The auditors will determine whether the amounts you have recorded as allowances for obsolete inventory or scrap are adequate, based on your procedures for doing so, historical patterns, "where used" reports, and reports of inventory usage as well as by physical observation during the physical count.
If you do not have such allowances, they may require you to create them. Inventory ownership. The auditors will review purchase records to ensure that the inventory in your warehouse is actually owned by the company as opposed to customer-owned inventory or inventory on consignment from suppliers.
Inventory layers. If you are using a FIFO or LIFO inventory valuation system, the auditors will test the inventory layers that you have recorded to verify that they are valid. If the company uses cycle counts instead of a physical count, the auditors can still use the procedures related to a physical count. They simply do so during one or more cycle counts, and can do so at any time; there is no need to only observe a cycle count that occurs at the end of the reporting period.
Their tests may also evaluate the frequency of cycle counts, as well as the quality of the investigations conducted by counters into any variances found. The extent of the procedures employed will decline if inventory constitutes a relatively small proportion of the assets listed on a company's balance sheet.
College Textbooks. Inventory audit is based on inventory information and policies, inventory levels, and inventory monitoring. Leave a Reply Cancel reply Your email address will not be published. There should be at least two personnel for the purchase department with rights and duties as per the Purchase Policy. To browse Academia. Log in with Facebook Log in with Google. Remember me on this computer.
Enter the email address you signed up with and we'll email you a reset link. Need an account? Click here to sign up. Download Free PDF. Oktami Indriyani. A short summary of this paper. Download Download PDF. Translate PDF. Inventories included in the balance sheet physically exist. Inventories represent items held for sale or use in the normal course of business.
Inventory quantities include all products, materials, and supplies owned by the company on hand, in transit, or stored at outside locations. The entity has legal title or similar rights of ownership to the inventories. Inventories are properly stated at cost except when market is lower f. Inventories are properly described and classified in the financial statements and disclosures are adequate.
Audit Procedures 1. Observe physical inventory counts. Test shipping and receiving cutoff procedures. Account for all inventory tags and count sheets used in recording the physical inventory count. Test the clerical accuracy of inventory listings. Trace test counts recorded during the physical inventory observation to the inventory listing.
Reconcile physical counts to perpetual records and general ledger balances and investigate significant variations. Test inventory transactions between a preliminary physical inventory date and the balance sheet date. Obtain confirmation of inventories at locations outside the entity. Review perpetual inventory records, production records, and purchasing records for indications of current activities. Analytically review the relationship of inventory balances to recent purchasing, production, and sales activities, and to anticipated sales volume.
Examine paid vendors' invoices, consignment agreement, and contracts. Review direct labor rates. Any deviations between standard policy document and process note should be updated and then confirmed with the client either orally or documented. Audit Procedure 7. Audit Program 9. The samples can be chosen based on the amount of the transactions, the supplier and the type of purchase, i.
Samples selected should be such that it should contain a risk element attached to it. In case manually take the specimen of the concerned person signature. If so obtain reason for the same. Audit Program In case of any deviation, reasons of the same filed by the purchase team has to be verified.
In case of any revision, has the same been authorized by the respective authorized personnel. Note: Inco terms are trade terms published by the International chamber of commerce that are commonly used in both international and domestic trade contracts. Whether the receipt is raised as soon as goods are received or at latter point of time.
If exemption from payment of certain taxes has been obtained from the Government, the approval letter has to be verified. Analyse if the purchase transaction falls within the purview of the transactions for which taxes are exempt. In case of any deviations reason for the same is to be obtained. Cash Purchases Audit findings and reporting Martha Lee Nov. JyotiSingh Jan. MaheshReddyNagireddy Apr.
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