Page 40 - eBook Audit Of Financial Statement Components

3.3 INV ENTORIES AND WORK IN PROGRESS

Inventories are major items on the balance sheet, i.e. in total

assets, especially in the current asset section. Inventories play
also a very significant and important role in preparation of income

statement and determination of net income or loss.

The auditors’ have the following objectives in the examination of
inventories and purchases:

1. To consider internal control over inventories and

purchases.
2. To determine the existence of inventories, and the client’s

ownership of these assets.

3. To establish the completeness of inventories and

purchase transaction.

4. To establish clerical accuracy of records and supporting
schedules for inventories and purchases.

5. To determine that the valuation inventories is based on

appropriate methods.
6. To determine the statement presentation of inventories is

adequate, including disclosure of classification of

inventories, accounting records and any inventories

pledged as collateral for loans.
7. To ensure that inventories and work-in-progress are

stated at the lower of cost and net realizable value.

8. To ensure that obsolete, slow-moving and damaged

inventories are adequately written down.
9. To ascertain physical existence of the inventories balance

as at year-end.

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