Page 41 - eBook Audit Of Financial Statement Components

Inventories And Work-In-Progress “The audit of
inventory, especially
Audit Assertion Audit Procedures tests of the year-end
balance, is often the
Existence Arrange with client to attend physical count of most complex and
inventories, if the inventory balance is material. time-consuming part

of the audit due to
Existence Obtain an aging listing of inventories as at year-end, the following factors:
showing quantities and valuation. Check against
Accuracy
inventory cards/ledgers and ensure correct casting. Inventory is
Valuation Check the bases of valuation of inventories, i.e. FIFO, often the largest
standard cost, average cost etc for raw materials, account on the
Accuracy balance sheet,
work-in-progress and finished goods.

Valuation Where standard cost is used, review the variance Inventory is
accounts to ascertain the reasons for unusual often at

variances. different
Review write-down for obsolete, slow moving and location,
damaged inventories, based on physical count
observation and from review of the aging listing of Diverse
inventories. inventory items
are often
Carry out a net realizable value (NRV) test to ensure difficult for
that inventories are stated at the lower of cost or auditors to
NRV
observe and
Classification Ensure that inventories and work-in-progress are value
properly categorized and disclosed in the financial
statements. Inventory
valuation is also

difficult when
estimation of
Normally, the auditor should attend a physical count of the
inventory
inventories at year-end. If the audit client does not allow the obsolesce is
necessary and
auditor to attend the count, then the auditor would have to when
manufacturing
consider whether this amounts to a limitation in the scope of costs must be
allocated to
the audit. If so, the auditor should consider qualifying the inventory”

financial statements in respect of the verification of the

physical existence of the inventories.

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