Observation of physical Evaluate management’s instructions and procedures for

recording and controlling the results of the entity’s

inventories physical inventory counting. Observe the performance of
the entity’s count procedures and perform test counts.
Trace test counts to the entity’s inventory compilation
and determine that the inventory compilation accurately
reflects actual inventory count results.
Confirmation of inventories held If significant, confirm inventories held by others at
the physical inventory date and trace confirmed
by others quantities to the inventory compilation; consider
observing these physical inventories as well.

Reconciliation of inventory Review the reconciliation of the valued physical

inventory compilation with the general ledger
compilation with general ledger account balances and the perpetual inventory
records. Investigate any unusual items and test
other reconciling items based on the established
testing threshold.
Rollforward procedures - When the physical inventory observation occurs at
an interim date, perform the rollforward procedures
inventories on the activity from the interim date to the balance
sheet date in a manner responsive to our combined
risk assessment and the length of the rollforward
period. Determine whether to perform additional
procedures related to specific items in the
rollforward period.
Inventory cutoff Trace the cutoff information obtained during the
physical observation to the accounting records of
sales and purchases.
Net realizable value testing - Test the provisions to reduce the valuation of
inventory to net realizable value, (e.g., obsolescence
inventories and other reserves) and verify that appropriate
adjustments are made in accordance with the
entity's accounting policies and applicable financial
reporting framework.
Test of Details Unusual item review