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3.5 Understand The Inventories And Work In Progress Audit
Transcript of 3.5 Understand The Inventories And Work In Progress Audit
Lecturer : Pn. Che Rugayah
Due Date : 28/7/2015
Apply suitable audit objective and assertions on inventories and work in progress.
Stock listing / stock card
Debit / credit note
PA 603 - Auditing And Anssurance
Understand The Inventories And Work In Progress
Select an evidence to audit the inventories and work in progress.
To ensure that inventories and work in progress are stated at the lower of cost and net realisable value.
To ensure that the basis of valuation for inventories is properly and consistenly applied.
To ascertain physical existence of inventories balances as at year end and ensure that inventories are properly disclosed in the financial statement
Audit test to be used when auditing the inventories and work in progress
Substantive test are those activities performed by auditor to evaluateand verifythe correctness of monetary amounts in regards to the client's recording of financial statement balance
Phase 1 - performed during the planning phase to assist in determining the nature, extent and timing of audit work to be performed.
- It will help auditor to identify significant matters requiring special consideration later in the engagement
Audit objective : to obtain evidence as to the existence as well as ownership and valuation of the inventory.
Inventory of the company exist at a given date, and recorded transactions have occurred during a given period
Inventory should be presented in the financial statements are so included
Check the state of valuation of inventory in FIFO
Inventory have been included in the financial statements at appropriate amounts
Arrage with client to attend physical court of inventories, if the inventory balance is material (see physical court instruction)
Obtain an aging listing of inventories as at year end, showing quantities and valuation. Check against inventory cards/ledgers and ensure correct casting
Check the bases of valuation of inventories ;ie, FIFO, standard cost, average cost, etc, for raw materials, work in progress and finished goods
Where standard casting is used, review the variance a/c to ascertain the reasons for unusual variances.
Review write-down for obsolete, slow-moving and damaged inventories, based on physical court observation and from review of the aging listing inventories.
Check reconciliation of inventory control a/c with inventory subsidiary a/c at the date of physical count and at year end, ensuring differences between the physical quantities and the book balances have been properly accounted for.
Carry out a net realizable value (NRV) test to ensure that inventories are stated at the lower of cost or NRV fair value.
Perform a cut-off test for purchases and sales by reviewing purchase orders, goods received notes, sales invoices, debit notes, credit notes and other relevant documents which control the movement of inventories.
Ensure that inventories and work in progress are properly categorized, described and disclosed in the financial statements.