AUDIT PROGRAM FOR INVENTORY

Risks
Ø  Inventory records may not be complete
Ø  Inventory transactions may be processed in the wr
Ø  Inventory items may not exist
Ø  Inventory carrying values may not be realizable

Steps
1.    Observe physical inventory

To an extent based on materiality and inherent risk, perf

a) inspect the premises to determine whether:

i) the arrangement of inventory is suc

ii) the inventory is in good condition w
iii) scrap, obsolete, and damaged good
iv) inventory owned by third parties is a
v) inventories appear to be adequately

b) in observing physical inventory counts, determine

i) the counts are carried out under pro

ii) appropriate procedures are employ
iii) quantities and descriptions are prop
iv) the methods used to determine qua
v) there are adequate procedures for d
vi) count totals are adequately checked
vii) there are adequate procedures to e
 viii) inventory on the company's premise
ix) tags or count sheets are signed by

c) test the counting of inventory items by selec

d) determine that procedures for accounting fo

e) determine whether slow-moving, obsolete,

f) consider the procedures established for det

b)    if appropriate, involve an expert to provide as

2.    Examine receiving and issuing activity

Test, to obtain a moderate to low level of assurance, the

a) examine issues transactions and supporting

b) select receiving reports for goods received

c) review supporting documentation for goods

c)    examine purchase and issues transactions an

d)    review records of returned goods and claims

3.    Test obsolete, slow-moving, scrapped or dama

Test, to an extent based upon materiality and inherent ri

a) determine whether slow-moving, obsolete,

i) obtaining and reviewing a schedule

ii) tracing information obtained during
iii) reviewing detailed inventory records
iv) reviewing periodic reports to manag
v) discussing with management quant
vi) discussing with management wheth

b)    review the pricing of such inventory and dete

4.    Test client's costing of inventory detail

Test the costing of the detailed priced raw materials inve

a) obtain and document an understanding of m

b) perform audit procedures to ensure that the

c) determine whether the method of inventory

c)     if appropriate, involve an expert to provide as

not be complete
may be processed in the wrong period

es may not be realizable

iality and inherent risk, perform the following:

mises to determine whether:

ngement of inventory is such that an accurate count is possible.

ntory is in good condition with adequate storage space, and whether items are properly packed or binned in a convenient mann
bsolete, and damaged goods are adequately identified and segregated.
y owned by third parties is adequately identified and segregated.
ies appear to be adequately safeguarded against access by unauthorized persons and protected against deterioration.

nventory counts, determine whether:

nts are carried out under proper supervision. Determine whether this official is independent of the custody and recording of inve
ate procedures are employed to control inventory movements (e.g., transfers, stock picking, etc.) during the count.
es and descriptions are properly entered on the inventory tags or sheets.
hods used to determine quantities are reasonably accurate.
e adequate procedures for determining quantities of goods not susceptible to direct physical counting (e.g., screws, nails).
tals are adequately checked by persons other than the original counters.
e adequate procedures to ensure that all inventory (other than that on the company's premises owned by others) is counted an
y on the company's premises owned by others has been appropriately identified and counted.
count sheets are signed by individuals carrying out the count, or other suitable means of identifying individuals carrying out the

g of inventory items by selecting items from the inventory tags or sheets and perform an independent count. Perform other cou

procedures for accounting for all inventory tags and count sheets are followed and that all such tags and sheets have been acco

her slow-moving, obsolete, and damaged items are identified and recorded by the count teams.

ocedures established for determining cutoff , visit the receiving and shipping departments and note the last receiving and shippi

olve an expert to provide assistance in evaluating the appropriateness of the value assigned.

nd issuing activity

low level of assurance, the cutoff of inventory by using information obtained at the physical inventory observation and data from

transactions and supporting documentation for a period before the balance sheet date and determine that goods issued before

reports for goods received before the balance sheet date and determine that all goods received before the inventory have bee

ng documentation for goods not included in the physical count but included in the general ledger inventory control account (e.g.

e and issues transactions and detailed supporting documents for the period after the balance sheet date to determine that they
returned goods and claims against suppliers and related debit (credit) memoranda for periods before and after the cutoff date t

moving, scrapped or damaged listing

n materiality and inherent risk, the schedules of slow-moving, obsolete, scrapped or damaged items used to determine the net

her slow-moving, obsolete, scrapped or damaged items have been adequately identified by:

g and reviewing a schedule of items that have shown little or no recent movement;
nformation obtained during the observation of the physical inventory to management reports of slow-moving, obsolete, scrappe
g detailed inventory records, bin cards, etc.;
g periodic reports to management concerning such information;
ng with management quantities held in the light of current production requirements, sales orders received and future marketing
ng with management whether any substantial inventory amounts may not be realizable because of major delays or disputes, de

of such inventory and determine whether it is priced in excess of net realizable value.

of inventory detail

ed priced raw materials inventory listings to obtain a moderate to low level of assurance that accuracy is achieved by performin
ument an understanding of methods and procedures for costing inventory;

ocedures to ensure that the inventory costs are appropriate, e.g., trace unit costs of inventory items to and from suppliers' invo

her the method of inventory pricing is consistent with the prior year; and

olve an expert to provide assistance in evaluating the appropriateness of the value assigned.
inned in a convenient manner for counting.

gainst deterioration.

ustody and recording of inventory. Observe whether persons supervising the inventory make test counts in all areas and review
uring the count.

g (e.g., screws, nails).

ed by others) is counted and that no inventory is counted more than once.

 individuals carrying out the count have been established, such as assigning tags or count sheets to count teams.

nt count. Perform other counts of inventories and compare the results with those recorded on the inventory tags or sheets by c

and sheets have been accounted for, including used and unused tags and sheets, and that they are secured against alteration

he last receiving and shipping document numbers before the count. If the client's procedures are not based on prenumbered d

ry observation and data from cutoff procedures and the search for unrecorded liabilities. Perform the following:

ne that goods issued before the balance sheet date have been excluded from raw materials inventory, and that goods included

ore the inventory have been included in inventory and liabilities.

entory control account (e.g., inventory in transit, duty and freight, returns) and determine that the goods are properly included in

date to determine that they have been reflected in the proper period. Where pre-numbered documents are used, ensure that d
re and after the cutoff date to determine that returns and claims against suppliers made after the cutoff date have been entered

s used to determine the net realizable value of inventory by performing the following:

w-moving, obsolete, scrapped or damaged items;

ceived and future marketing forecasts; examine documentation, including, where appropriate, aged listings of inventory balance
major delays or disputes, defective work, marketing difficulties, etc.

cy is achieved by performing the following:

to and from suppliers' invoices or standard costing information;
ounts in all areas and review all areas where inventory are kept to ensure that they have all been counted and the counts are re
 count teams.

ventory tags or sheets by company personnel. Follow up any differences noted in the counts. Record selected items counted

e secured against alteration. Obtain details of records in order to test later for suppression, manipulation, addition or substitutio

ot based on prenumbered documents, then prepare a list of shipping and receiving documents for a period immediately before

he following:

ory, and that goods included in raw materials inventory are not included in work in progress, finished goods, sales and cost of s

ods are properly included in inventory and the related liability has been recorded.

ents are used, ensure that documents have been used in sequence and earlier numbers are included in and later numbers excl
off date have been entered in the appropriate period

listings of inventory balances, substantiating the information obtained; and

unted and the counts are recorded.
ord selected items counted for subsequent comparison with priced inventory listings. (Existence/Occurrence, Accuracy)

lation, addition or substitution of records after the physical inventory count (e.g., take copies of some or all of the count sheets)

period immediately before and after the end of the period. Include documents for returns to suppliers and from customers, if d

d goods, sales and cost of sales.

d in and later numbers excluded from transactions in the period.

 ccurrence, Accuracy)

me or all of the count sheets) (Completeness)

ers and from customers, if different documents are used.