4.3.2. Observation of physical inventory
Inventory control and inventory management are not responsibilities .
auditor's responsibility but that of the client's management.
The auditor's duty is to observe physical inventory. Although
travel
observe
physical inventory is a
serious
time consuming and expensive
porch
but extremely important and necessary for auditors when auditing the main
inventory process. While doing so
porch
procedure
In this audit , the auditor needs to collect
information
trustworthiness
all procedures
inventory management
Only then can the auditor have confidence in the inventory results that management has obtained.
provide for. In a
number of cases
special
know , the customer unit can rent a
number of outside inventory experts to come and take inventory of some of the inventory
special
know
(eg gems, metals ) help the unit. When measuring , the auditor must consider
enter
conclusion
Both experts and auditors must evaluate and use the results of compliance measurements .
according to prescribed auditing standards.
The auditor should discuss the time of physical inventory observation with the
melon manager
and the warehouse system
unit and melon
on risk assessments
Audit . The auditor should review and evaluate the company's inventory count plan .
customers to be able to arrange and adjust to suit their audit plan .
The inventory count date should be close to the balance sheet date and the auditor should be present at the time of the inventory count . For entities with multiple warehouses in different locations, the auditor may change the location of inventory observations between years .
and ensure a reasonable scale of inventory observations each year. In that case , for
As with any audit that the auditor is not able to observe , the auditor
may use the results of internal auditors and of course must comply with the Standards.
ink
audit on “ Job Evaluation ”
of internal auditors”.
While observing physical inventory of goods , to ensure detailed procedures
ok
food
porch
appropriately
The auditor should :
- Observe all customer service staff when performing prescribed procedures .
- Confirm that all inventory checks have been pre - numbered and that inventory is accounted for.
check the box
- Pay attention to containers, empty containers.
- Confirm that all counted inventory is individually marked.
In addition, auditors also need to perform some specific procedures such as:
- Test inventory and compare test inventory results with enterprise inventory results.
- Record in detail the serial numbers of used and unused inventory vouchers, and record the inventory marking symbols.
- Assess the general condition of inventory, making notes on broken, obsolete and slow-moving inventory.
4.4. Check inventory prices and economic contracts
It can be said that this procedure is closely related to the basis of measurement and valuation. For the inspection of inventory prices, the auditor needs to be responsible for determining the basis and method of valuation of inventory. Are they in compliance with generally accepted accounting principles? Then focus on clarifying the following issues:
- What pricing methods do customers use?
- Is the method used consistently from year to year?
- Is this method practical and reasonable?
Regarding the first issue, inventory valuation method, it can be said that there are many inventory valuation methods such as the actual identification method, the weighted average method, the first-in, first-out method. The auditor must determine which of these methods the client uses.
The second issue is to pay attention to the change in inventory valuation method this year compared to last year. If there is a change in inventory valuation method, all such changes must be declared in the financial statement notes. Furthermore, the auditor must emphasize the consistency in the use of inventory valuation method between the two years.
Third, the auditor must evaluate the reasonableness and appropriateness of the inventory valuation method applied by the client in practice. To do this, the auditor must conduct a test to check the price of a number of representative inventories.
The fourth problem is that goods and materials may be held by customers but may not necessarily be owned by the unit because the goods have been sold but not yet shipped. There may also be goods and materials that are not in the unit's warehouse but are still owned by the unit because the goods are on the way or sent for sale or processing. There are also cases where inventories are mortgaged to banks or credit institutions. Therefore, auditors must check all economic contracts and loan agreements to determine ownership of inventories to avoid confusion during inventory.
4.5. Send confirmation letters for storage unit inventories at third parties
When a client's inventory is stored at a warehouse or with a third party, the auditor should obtain audit evidence of the existence of the inventory by contacting the custodian directly. If the quantity of the inventory is not too large and does not account for a large proportion of the total
In case of assets of the unit, it is enough to collect confirmation evidence. In the opposite case, the auditor needs to perform some additional procedures such as:
- Consider the integrity and independence of the third party.
- Observe physical inventory.
- Obtain other auditors' reports on inventory control procedures and inventory counting procedures at the third party.
This procedure allows the auditor to verify the assertion of rights and obligations to inventory. Furthermore, it may also provide information about the completeness assertion if a third party confirms it. Inventory confirmation does not provide valuation and measurement evidence because the third party has no obligation to report on the status of inventory in the warehouse.
FURTHER READING
INVENTORY CYCLE AUDIT PROCEDURES
AAC Auditing and Accounting Company performed a detailed inventory audit process with XYZ Joint Stock Company in 2015, conducted by auditor Tran Hien.
AUDIT AND ACCOUNTING COMPANY
Customer name: XYZ Joint Stock Company
Closing date: December 31, 2014
Content: Inventory
E230 | |||
Name | Day | ||
CT founder | Good | March 19, 2015 | |
Reviewer 1 | Tran Hien | March 19, 2015 | |
Reviewer 2 | |||
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A. OBJECTIVES
Ensure that inventories are real, owned by the business; have been accurately and completely accounted for; and are evaluated and presented in accordance with current accounting standards and regimes.
B. RISK OF MATERIAL MISCONDUCT OF THE ITEM
The major risks
weak
Audit procedures | The performer | Reference mat | |
STT
Procedure | The performer | References | |
I. General procedures | |||
1 | Check that the accounting principles applied are consistent with the previous year and in accordance with the provisions of current accounting standards and regimes. | Good | D540.2 |
2 | Prepare a summary table comparing with the previous year's closing balance. Compare the balances on the summary table with the previous year's Balance Sheet and audit working papers (if any). | Good | D540.3 |
II. Analysis test | |||
1 | Compare inventory balances (including reserves) and inventory composition this year with last year, explaining any unusual fluctuations. | Good | D540.4 |
Compare the ratio of inventory to total current assets this year with last year, and assess the reasonableness of the fluctuations. | Good | D540.4 | |
3 | Compare inventory turnover time year over year in advance and plan, determine the cause of fluctuations and the need for provisions (if any). | ||
4 | Compare cost structure (raw materials, labor, General production) this year with last year, assess the reasonableness of the fluctuations. | ||
III. Detailed inspection | |||
1 | Participate in witnessing year-end inventory count | ||
1.1 | Identify all warehouses (owned or rented), consignments..., value the warehouses and assess the risks of each warehouse to determine where the auditor will participate in witnessing the inventory. | Good | D540.5 |
1.2 | Perform inventory witnessing procedures according to the Inventory Count Program. | Good | D540.5 |
1.3 | For rented warehouses: Ask the warehouse keeper to confirm the quantity of goods sent, if important. | ||
2 | Check and compare detailed inventory data | ||
2.1 | Compare data between import, export, inventory reports with General Ledger data and Balance Sheet of arising numbers. | Good | D540.5 |
2.2 | Make sure all inventory records are included in the Inventory Results Summary Sheet. | Good | D540.5 |
2.3 | Ensure that the Inventory Summary Sheet matches the company's inventory count sheets and the KTV's observations (if any) and third party confirmation (if any). | Good | D540.5 |
2.4 | Compare the actual quantity sample from the Inventory Results Summary Table with the import, export, and inventory reports and vice versa. | Good | D540.5 |
2.5 | Review monthly import, export, inventory summary tables and especially year-end inventory balances to develop | Good | D540.5 |
2
Identify and review unusual items and conduct appropriate audit procedures. | |||
2.6 | Ensure that the business has reconciled and adjusted accounting figures with actual inventory figures. | Good | D540.5 |
3 | Check the purchase transactions during the period: Check a sample of inventory purchase transactions during the period, compare transactions recorded in the General Ledger with related documents. | ||
4 | Check pricing | ||
4.1 | Goods in transit : Check a sample of large value purchases with purchase documents to ensure that the balances of goods in transit at the closing date have been recorded accurately and in the correct period. | ||
4.2 | Raw materials, tools, goods: Check and select samples of import, export, and inventory reports for several months to ensure that the business has consistently implemented the chosen method of calculating the cost of exported goods. | Good | D540.5 |
4.3 | Unfinished products: | ||
4.3.1 | Compare the estimated percentage of completion based on observations at the time of inventory count with the percentage used to calculate the value of work in progress. Obtain reasonable justification for any material differences. | ||
4.3.2 | Check the calculation and allocation of manufacturing costs for unfinished products at the end of the period. | ||
4.4 | Finished product: | ||
4.4.1 | Compare the data on the cost sheet with the quantity of goods according to the production report and production costs during the period. | ||
4.4.2 | Check and evaluate the reasonableness of the collection and allocation of finished product prices in warehouse. | ||
4.4.3 | Check the calculation of the warehouse price and compare the recorded cost of goods sold (monthly, item by item) between the General Ledger and the report on import, export, and inventory of finished products, ensuring |
ensure accuracy and consistency. | |||
4.4.4 | Compare direct costs (materials, labor) to related components. | ||
4.4.5 | Check that costs are recorded directly in the cost price, not through expense accounts. | ||
4.4.6 | Analyze and check the general manufacturing costs calculated in inventory, evaluate the reasonableness of cost allocation methods. | ||
4.4.7 | In case the business operates below normal capacity: consider and estimate fixed overhead costs below normal capacity not included in inventory value. | ||
4.5 | Goods for sale: | ||
4.5.1 | Check the quantity of goods sent for sale or send a confirmation letter to the consignee (if necessary) or shipping documents, contracts or delivery records after the end of the accounting year to ensure the reasonableness of the recording. | ||
4.5.2 | Refer to the unit price of the consignment to the results of the price calculation check in the Finished Products section. | ||
5 | Check inventory write-down provision | ||
5.1 | Research and evaluate the appropriateness of the applied reserve calculation methods (if any). | ||
5.2 | Review slow-moving, obsolete or damaged inventory. | Good | D540.5 |
5.3 | Analyze gross profit to determine whether inventory has been incurred with a cost price higher than net realizable value to determine the need for a provision. | ||
5.4 | Ensure that there are no events occurring after the accounting closing date that affect the transactions during the year and the value of inventory. | Good | D540.5 |
5.5 | Evaluate the tax treatment of established provisions for impairment. |
Checking the correctness: Selecting samples of warehouse transactions for raw materials, tools, and equipment before and afterReport date and check receipts, bills of lading, invoices, contracts with warehouse reports, inventory detail books, and purchase reports to ensure transactions are recorded in the correct accounting period. | Good | D540.5 | |
7 | Presentation Check: Check the presentation of inventory on the financial statements. | Good | D540.5 |
IV. Other audit procedures | |||
6
D. CONCLUSION
In my opinion, based on the evidence obtained from performing the above procedures, the audit objectives presented at the beginning of the audit program have been achieved, except for the following matters:
Other conclusions of the Board of Directors and/or Chief Auditor (if any):
………………………….
Working Paper: (Inventory)
AUDITING AND ACCOUNTING COMPANY LIMITED - AAC
Guest name
row:
XYZ Joint Stock Company | Founder | Day | D540.1 | |
Topic: | Inventory | Good | March 19, 2015 | |
(Goal, source) | Inspector | Day | ||
original data service | ||||
for audit) | ||||
Year: | 2014 | Tran Hien | March 19, 2015 |
Target
TK152 | TK153 | TK156 | |
Beginning balance | 1,180,000 | 9,207,500 | 4,316,286,425 |
Debt Amount | 1,000,000 | 66,205,957 | 191.223.550.556 |
Number of transactions | 1,000,000 | 66,025,957 | 190.342.550.730 |
Closing balance | 1,180,000 | 10,387,500 | 5.197.360.251 |