This website uses cookies to ensure you have the best experience. Learn more

Inventory Auditing Essay

1246 words - 5 pages

Inventory Auditing

Inventory Auditing
Inventory is tangible goods held by a company to support production, support activities or for sale or customer service. They are comprised normally of parts, tools, maintenance supplies, raw materials, work in progress, finished goods and waste or by-products (Inventory, 2012). Inventory is often the main item in the current assets category, and must be accurately counted and valued at the end of the accounting period to ascertain a company's profit or loss. Organizations whose inventory items have a bigger unit cost often keep a daily record of changes in inventory (perpetual inventory method) to ensure accurate ...view middle of the document...

The existence assertion for the inventory balance is verified mainly by observation of the company's annual inventory count (Clikeman, 2004). This procedure involves an auditor's attendance at some or all of the company's inventory storage facilities during the count (Inventory Audit Procedures, 2012). Usually, the auditor will select items from the company's inventory records and verify their existence at the storage facility. Many times, the auditor will make selections of items that appear to be the most material to the company's account balance, but may also make selections at random. Also, verify that inventory held for third parties are not included in the year-end inventory figure (Clikeman, 2004)..
The rights assertion relates to whether or not the company has the right to show the inventory as part of the company's accounting records (Clikeman, 2004). Situations where the company may have physical possession of inventory, but may not satisfy the rights assertion, include consignment sales and bill and hold arrangements Audit procedures designed to test rights and obligations assertions often involve reading documents such as deeds, contracts, vendor invoices, and loan agreements to determine whether the organization has satisfactory title to its assets and whether the entity is obligated to pay the liabilities (Clikeman, 2004).
As required by ASC 330-10-35-1 inventory balances should be valued on the balance sheet at the cost or market price, whichever is lower (Section 3140: Inventory, 2012). The auditor tests this assertion by examining the price of inventory sold versus the cost of producing or purchasing the inventory and by conducting price testing. Auditors will also examine inventory for signs of obsolescence during the physical inventory observation (Clikeman, 2004). Inventory that appears old and shows unacceptable signs of spoilage or deterioration should be scrutinized further.
Auditors are able to test the completeness assertion during the inventory observation process. While performing test counts, the auditor will make selections from the inventory and verify quantities in the company's accounting records (Naveed, 2010). The auditor will also examine shipments coming into and out of the warehouse close to the period's end date to make sure that transaction were recorded in the proper period (Clikeman, 2004).
At the end of the financial reporting process, management and the auditors will review the financial statements and footnotes for proper presentation and disclosure of inventory balances and transactions. Methods of accounting for inventory, inventory classification and valuation methods are some of the required disclosures. The auditing of the presentation and disclosure assertion is usually accomplished by the use of a financial reporting checklist, as the requirements can be numerous and complicated (Naveed, 2010).
Inventory fraud can be committed by manipulating financial statements. This...

Other Papers Like Inventory Auditing

Health Management Case Essay

1120 words - 5 pages Ms. Jill Karnick, the BDO Seidman semi-senior who had been assigned the primary responsibility for auditing HMI's inventory account, took the witness stand. Karnick revealed in fact, she had attempted during the audit to perform an inventory roll forward, which is essentially equivalent to an inventory roll back. But she didn't continue to carry out the test for it was "normal practice" to discard the results of inconclusive audit test

Kudler Fine Foods: System Integrity and Validation

1357 words - 6 pages Kudler Fine Foods: System Integrity and Validation Jessica Goulet ACC/542 March 14, 2010 Michael Wells Kudler Recommendation Kudler Fine Foods recently implemented new accounting software to handle the daily sales, inventory, accounts payable, accounts receivable, payroll, and general ledger functions. In conjunction with the new software, Kudler must consider the proper course of action for auditing the transactions to ensure

Barnes and Fischers

2308 words - 10 pages , the current auditor came to a decision not to engage manufacturing company for auditing. Appendix Financial Analysis of Ocean Manufacturing and Industry | Ocean Manufacturing 2014 | Industry 2014 | Return on Equity | 8.94% | 22.10% | Return on Assets | 4.54% | 7.20% | Assets to Equity | 1.97 | 3.59 | Accounts Receivable Turnover | 26.84 | 8.14 | Average Collection Period | 31.23 | 44.84 | Inventory Turnover | 22.05 | 7.5 | Days in Inventory | 16.54 | 47.67 | Debt to Equity | 0.97 | 2.06 | Times Interest Earned | 4.70 | 2.2 | Current Ratio | 1.85 | 1.2 | Profit Margin | 5.5% | 10.00% |

Auditing Week 2 Hw

903 words - 4 pages two defenses Yost and Co. should use in a suit by First City National Bank. First, there is a lack of privity of contract. Even though this was a known third party, it does not necessarily mean that there is any duty to that party in this situation. The second defense which Yost is more likely to be successful with, is that the firm followed auditing standards in the audit of inventory, including the employment of due care. Ordinarily it is

Smackey Dog Foods

2084 words - 9 pages performed: 1. Inquiry with property, plant, and equipment employees. 2. Review of items noted during property, plant, and equipment inventory counts 3. Confirmation of liabilities to banks and other lending institutions 4. Review of lease agreements 5. Review of property, plant, and equipment contracts. 6. Send letters to legal counsel. (Auditing and Assurances Services p. 640) Q8 The client wants to know if you will be

Audit Program Design

923 words - 4 pages Audit Program Design Part III Sheila Dunn ACC 546 May 13, 2013 Cecil Lucy Audit Program Design Part III Inventory and Warehouse Cycle The inventory and warehouse cycle can be divided into five sections: acquire and record raw materials, labor, and overhead, internally transfer assets and costs, ship goods and record revenue and costs, physically observe inventory, and price and compile inventory. The following will be the tests of

Royal Mint

342 words - 2 pages commemorative coins produced and distributed o New technology used on the last coins (Stamp) Demands in Canadian: 4.5 – 5 billion o This demand is based on the coin orders, but also calculated with an IT structure analysing the market. o Trade and commerce activity is unknown, and invisible for RCM o Over this 4.5-5 billion  8% comes from RCM production  11% from recycling  79% from bank inventory Canadian Circulation Coin

System Integrity and Validation

1782 words - 8 pages Over the past several weeks I have had the opportunity to study Kudler Fine Foods operations. This has included their financials, inventory, payroll, and human resources. The attached brief explores audit productivity software used by Kudler’s audit firm and how it can help Kudler improve its operation and plans for expansion. Computer Assisted Auditing Techniques Computer Assisted Audit Techniques (CAATs) are computer base tools that an

Enron Company

3741 words - 15 pages . Additional Information ABC manufactures and sells mp3 players and travel alarm clocks. Current Issues in Auditing Volume 8, Issue 1, 2014 Clikeman and Diaz I3 All sales are on credit to department stores and electronics wholesaling companies. Credit terms are net 30 days. ABC offers a one-year warranty covering manufacturing defects. ABC uses a periodic inventory system and determines its year-end inventory by

The Us Surgucal Case

840 words - 4 pages many control risks that should have been taking regarding inventory along with preliminary audit strategies for the inventory and substantive test to be done that would have raised many flags during the typical audits as well as in depth ones. First and foremost, you would need to have a clear understanding of the entity and its environment. By recognizing these particular aspects, you would be able to better judge the effects and normal

Accounting System

685 words - 3 pages ). Moreover, the key features of the system will stay the same but some of these features will be upgraded. In addition, upgrading the accounting system will include new core technology, added benefits, and prove to be more cost effective in the long term. Key Features The key features and systems that will be included with the accounting system upgrade are Enterprise Resource Management, auditing software, budgeting software

Related Essays

Auditing, Attestation, And Assurance Services Essay

1346 words - 6 pages Auditing, Attestation, and Assurance Services Auditors are a necessity to an organization’s health. Auditors comply with many rules and regulations set by regulating organizations such as the Federal Accounting Standards Board (FASB), Internal Revenue Service (IRS), and the Public Company Accounting Oversight Board (PCAOB). “The statements on Auditing Standards (SASs) and Statements on Standards of Attestation Engagements (SSAEs) are

Compliance In Tax Issues Essay

815 words - 4 pages the accountant professionals in their activitiesElimination of LIFOInternational accounting standards and ISA do not accept last-in-first-out (LIFO) principles of inventory management. LIFO means that the most recent item of inventory that's IFRS does not permit Last in First out (LIFO) as an inventory cost methodTransition costThe cost of switching from local accounting and auditing standards are very high since they include Trainings to the

Audit Design Program Iii Essay

1202 words - 5 pages finished goods and ship finished goods. Cash account is a part of every cycle except inventory and warehousing. Cash is primarily important and extremely vulnerable to fraud that is why auditor needs to be careful in the assessing risks in auditing cash account. Anderson, Olds & Watershed’s (AOW) responsibility is to conduct a fair and unbiased audit. We will conduct these tests and procedures according to PCAOB auditing standards. There is

Observation Of Physical Inventory Essay

702 words - 3 pages observe. But before an auditor can pursue this audit procedure, he must first have to gather enough information about the company under audit’s inventory procedures. Aside from that, he must also identify inventory locations, have a tour of the business, and forbid movement of inventory. Observation of inventories is a generally accepted auditing procedure. The independent auditor who issues an opinion when he has not employed them must bear in