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10 Cards in this Set
- Front
- Back
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1. Obtain listing of Inventory and reconcile to ledgers |
do this to make sure the inventory records agree with the financial statements |
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2. Evaluate the clients planning of the physical inventory |
Assess for careful planning on the part of the client; is the plan communicated; are procedures written; what dates are the counts performed; are specialists needed? From the auditor point of view, the scope of the client's physical inventory determines your plans - how much staff to observe; locations; timing; extent of observation and test counts. |
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3. Observe the takin gof the physical inventory and make test counts |
Ensure only usable inventory owned by the client is included in the count. This means also ensuring obsolete inventory and consigned inventory is NOT included in inventory. Auditors also need to establish cutoff; in other words you need to make sure the client is only including inventory reeived by the end of the fiscal year and not inventory received after year end. This means you have to establish cutoffs. |
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4. Review the Year-End cutoff of Purchase and Sales Transaction |
Make sure sales are recorded in the proper year, invnetories in the proper year. Inspect shipping documents and receiving reports, looking for terms and conditions of the shipments (FOB shipping or destinations) to determin ownership. |
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5. Obtain a copy of the completed physical inventory, test its accuracy, and trace test counts to the listing. |
Test the accuracy of the clients additions, cost extensions, etc. and trace your audited test counts to the client's final inventory numbers to verify the year-end numbers actually were included as final reported inventory amounts. |
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6. Evaluate the bases and methods of inventory pricing |
Consistent with the prior year; changes in pricing (from FIFO to LIFO) etc. |
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7. Test the pricing of inventories |
You will first have to determine the inventory costing method (FIFO, LIFO, etc) your client uses, then refer back to invoices and test counts against actual product flow into the production and slaes processes. Think about the processes involved with cost flow assumptions related to inventories (i.e., FIFO means the product in the process irst is the product first sold, hence it is part of COGS and not part of inventory), and audit to what should be happening with your clients process. |
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8. Perfom Analytical Procedures |
remember to compare current period balances with prior year balances, and investigate reasons for material variances/differences. |
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9. Determin whether any inventories have been pledged and reveiw purchase and sales commitments. |
The title is self-explanatory as to what we need to do |
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10. Evaluate the finanical statement disclosure and presentations |
Ascertain that notes to the finanicals and other disclosures are in accordance with GAAP. |
