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    Auditing For Inventory Cycle

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    Kirena Xaviery
    This document outlines the process for auditing inventory, including assessing inherent and control risks. It discusses important inventory documents and records to review. It also describes key control activities and tests of controls related to inventory transactions, including proper segregation of duties and controls over occurrence, completeness, authorization, accuracy, cutoff, classification, and presentation of inventory. The summary concludes that the auditor must aggregate any misstatements found and determine if additional audit procedures are needed to reduce audit risk to an acceptable level.

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    Auditing For Inventory Cycle

    Uploaded by

    Kirena Xaviery
    217 views2 pages
    This document outlines the process for auditing inventory, including assessing inherent and control risks. It discusses important inventory documents and records to review. It also describes key control activities and tests of controls related to inventory transactions, including proper segregation of duties and controls over occurrence, completeness, authorization, accuracy, cutoff, classification, and presentation of inventory. The summary concludes that the auditor must aggregate any misstatements found and determine if additional audit procedures are needed to reduce audit risk to an acceptable level.

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    Auditing for Inventory Cycle

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    This document outlines the process for auditing inventory, including assessing inherent and control risks. It discusses important inventory documents and records to review. It also describes key control activities and tests of controls related to inventory transactions, including proper segregation of duties and controls over occurrence, completeness, authorization, accuracy, cutoff, classification, and presentation of inventory. The summary concludes that the auditor must aggregate any misstatements found and determine if additional audit procedures are needed to reduce audit risk to an acceptable level.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    217 views2 pages

    Auditing For Inventory Cycle

    Uploaded by

    Kirena Xaviery
    This document outlines the process for auditing inventory, including assessing inherent and control risks. It discusses important inventory documents and records to review. It also describes key control activities and tests of controls related to inventory transactions, including proper segregation of duties and controls over occurrence, completeness, authorization, accuracy, cutoff, classification, and presentation of inventory. The summary concludes that the auditor must aggregate any misstatements found and determine if additional audit procedures are needed to reduce audit risk to an acceptable level.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
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    Auditing for Inventory Cycle

    Auditing inventory is the process of cross-checking financial records with physical inventory
    and records. It is important aspect of gathering evidence, especially for manufacturing or
    retail-based businesses. It can represent a large balance of assets or capital.

    Doc :

    Production schedule

    Production data information

    Receiving report

    Cost accumulation and variance report

    Materials requisition

    Inventory status report

    Inventory master file

    Shipping order

    INHERENT RISK ASSESMENT

     Industry-Related Factors, indicate the presence of material misstatements in


    inventory.
     Engagement and Operating Characteristics, it’s important bcs the type of product
    sold by the entity can increase the potential for defalcation and inventory is often
    difficult to audit, and its valuation may result in disagreements with the entity.

    CONTROL RISK

     Understand and Document Internal Control


     Plan and Perform Tests of Controls
     Set and Document the Control Risk

    CONTROL ACTIVIIES & TEST OF CONTROL – INV. TRANSACTION

     Occurrence, The major control activity for preventing fictitious inventory


    transactions from being recorded is proper segregation of duties, in which the
    inventory management and inventory stores functions are separated from the
    departments responsible for inventory and cost-accounting records.
     Completeness, relate to recording inventory that has been received & contained
    within the purchasing process.
     Authorization, The auditor’s concern with authorization in the inventory system is
    with unauthorized purchase or production activity that may lead to excess levels of
    certain types of finished goods
     Accuracy, applying the correct price to the actual quantity received
     Cutoff, Review the procedures and forms used to classify inventory
     Classification, can usually be accomplished by determining which departments in the
    manufacturing process are included in raw materials, work in process, and finished
    goods inventory.
     Presentation, important to properly allocate costs to appropriate classes of
    inventory

    Evaluating the Audit Findings—Inventory

    When the auditor has completed the planned substantive tests of the inventory account, all
    the identified misstatements should be aggregated. The auditor should again analyze the
    misstatements discovered through the application of substantive procedures, because these
    misstatements may provide additional evidence on the control risk for the inventory
    management process.

    If the auditor concludes that the audit risk is unacceptably high, additional audit procedures
    should be performed, or the auditor must be satisfied that the entity has adjusted the
    related financial statement accounts to an acceptable level.

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