auditprocedureofinventory-100815122922-phpapp02 (1)

7/29/2019 auditprocedureofinventory-100815122922-phpapp02 (1)

1/4

Cut-Off For Inventory/stocks

Cut-off FOR INVENTORY/STOCKS

Risks

Inventory records may not be complete

Inventory transactions may be processed in the wrong period

Inventory items may not exist Inventory carrying values may not be realizable

Steps

1) Observe physical inventory

To an extent based on materiality and inherent risk, perform the following:

a) Inspect the premises to determine whether:

The arrangement of inventory is such that an accurate count is possible. The inventory is in good condition with adequate storage space, and whether

items are properly packed or binned in a convenient manner for counting.

Scrape, obsolete, and damaged goods are adequately identified and

segregated.

Inventory owned by third parties is adequately identified and segregated.

Inventories appear to adequately safeguard against access by unauthorized

persons and protected against deterioration.

b) In observing physical inventory counts, determine whether:

The counts are carried out under proper supervision. Determine whether this

official is independent of the custody and recording of inventory. Observe

whether persons supervising the inventory make test counts in all areas andreview all areas where inventory are kept to ensure that they have all been

counted and the count are recorded.

Appropriate procedures are employed to control inventory movements (e.g.,

transfers, stock picking, etc.) during the count.

Quantities and description are properly entered on the inventory tags or sheets.

The methods used to determine quantities are reasonably accurate. There are adequate procedures for determining quantities of goods not

susceptible to direct physical counting (e.g., screws, nails).

Counts total are adequately checked by persons other than the originalcounters.

There are adequate procedures to ensure that all inventory (other than that on

the companys premises owned by others) is counted and that no inventory iscounted more than once.


2/4


Inventory on the companys premises owned by others has been

appropriately identified and counted.

Tags or count sheets are signed by individuals carrying out the count, or other

suitable means of identifying individuals carrying out the count have been

established, such as assigning tags or count sheets to count teams.

c) Test the counting of inventory items by selecting items from the inventory tags or

sheets and perform an independent count. Perform other counts of inventories and

compare the results with those recorded on the inventory tags or sheets bycompany personnel. Follow up any differences noted in the counts. Record

selected items counted or subsequent comparison with priced inventory listings.

(Existence/Occurrence, Accuracy)

d) Determine that procedures for accounting for all inventory tags and count sheetsare followed and that all such tags and sheets have been accounted for, including

used and unused tags and sheets, and that they are secured against alteration.Obtain details of records in order to test later for suppression, manipulation,

addition or substitution of records after the physical inventory count (e.g., take

copies of some or the entire count sheet) (Completeness).e) Determine whether slow-moving, obsolete, and damaged items are identified and

recorded by the count teams

f) Consider the procedures established for determining cutoff, visit the receiving and

shipping departments and note the last receiving and shipping documents numbersbefore the count if the client procedures are not based on pre-numbered

documents, and then prepare a list of shipping and receiving documents for aperiod immediately before and after the end of the period. Include documents forreturns to suppliers and from customers, if different documents are used.

g) If appropriate, involve an expert to provide assistance in evaluating the

appropriateness of the value assigned.

2) Examine receiving and issuing activity

Test, to obtain a moderate to low level of assurance, the cutoff of inventory by using

information obtained at the physical inventory observation and data from cutoff

procedures and the search for unrecorded liabilities. Perform the following:

a) Examine issues transactions and supporting documentation for a period before the

balance sheet date and determine that goods issued before the balance sheet datehave been excluded from raw materials inventory, and that goods included in raw

materials inventory are not included in work in progress, finished goods, sales and

cost of sales.


3/4


b) Select receiving reports for goods received before the balance sheet date and

determine that all goods received before the inventory have been included in

inventory and liabilities.c) Review supporting documentation for goods not included in the physical count

but included in the general ledger inventory control account (e.g., inventory in

transit, duty and freight, returns) and determines that the goods are properlyincluded in inventory and the related liability has been recorded.

d) Examine purchase and issues transactions and detailed supporting documents for

the period after the balance sheet date to determine that they have been reflectedin the proper period. Where pre-numbered documents are used, ensure that

documents have been used in sequence and earlier numbers are included in and

later numbers excluded from transactions in the period.

e) Review records of returned goods and claims against suppliers and related debit/(credit) memoranda for periods before and after the cutoff date to determine to

that returns and claims against suppliers made after the cutoff date have been

entered in the appropriate period.

3) Test obsolete, slow-moving, scrapped or damaged listing

Test, to an extent based upon materiality and inherent risk, the schedules of slow-moving,

obsolete, scrapped or damaged items used to determine the net realizable value of

inventory by performing the following:

a) Determine whether slow-making , obsolete, scrapped or damaged items have been

adequately identified by:

Obtaining and reviewing a schedule of items that have shown little or no

recent movement; Tracing information obtained during the observation of the physical inventory

to management reports of slow-moving, obsolete, scrapped of damaged item;

Reviewing detailed inventory records, bin cards, etc.;

Reviewing periodic reports to management concerning such information;

Discussing with management quantities held in the light of current production

requirements, sales order received and future marketing forecasts; examine

documentation, including, where appropriate, aged listings of inventorybalances, substantiating the information obtained; and

Discussing with management whether any substantial inventory amounts may

not be realizable because of major delays or disputes, defective work,

marketing difficulties, etc.b) Review the pricing of such inventory and determine whether is priced in excess of

net realizable value.

4) Test clients costing of inventory detail


4/4


Test the costing of the detailed priced raw materials inventory listings to obtain a

moderate to low level of assurance that accuracy is achieved by performing the

following:

a) Obtain and document and understanding of methods procedures for costing

inventory;b) Performs audit procedures to ensure that the inventory costs are appropriate, e.g.,

trace unit costs of inventory items to and from suppliers invoices or standard

costing information;c) Determine whether the method of inventory pricing is consistent with the prior

year; and

d) If appropriate, involve an expert to provide assistance in evaluating the

appropriateness of the value assigned.

Documents

auditprocedureofinventory-100815122922-phpapp02 (1)