Audit of Inventory
Inventory Control
 TOC (materiality is relevant) & ST are possible
to do simultaneously
How to prepare for an inventory count?
 effective and efficient
PLAN - BEFORE
1. Manpower – “count team”, no. of people needed
 at least 2 people
 person 1: preparer/counter (warehouser)
 person 2: reviewer/ checker (recorder):
accounting, supervises the counter
 counter must be someone from the warehouse
bc they know better
 proper safety precaution
INVENTORY COUNT – existence and completeness
2. Instruction – apply only what’s applicable, the
management gives the instruction
 Consistent unit of measure
 Pattern of counting (direction of the count)
 Counting method
3. Date of Count – nearest year end
 Usually holiday kay walay tao
4. Prepare warehouse ahead of time
 Mgt can arrange prior & organize few days
before
 Segregate
 Make use if inventory tags
Contents of Inventory Tags
 Description of the item
 Quantity (counter fills out this part)
 Signed by counter & checker
Purpose of Inventory Tags
 Helps segregate & identify
 Identify forgotten items or uncounted items
 Marked as “counted”
 Prevents double count
 Should match records at the end of the count
 Everything in the warehouse is tagged
 Auditor can tag by batch
Segregation. Separate the ff:
 Damaged goods (need to be
disposed/reworked) in a different part of the
warehouse. DO NOT THROW immediately.
 Old (discontinued) inventory, leftovers
 Perishable items
 Obsolete items
Specifics on segragation:
 Goods on consignment received – not necessarily
separated but preferred to be counted
 Goods on consignment delivered – external
confirmation
 If delivery to customer while count – record as of
date
 If newly delivered from purchaser – segregate new
delivery
 Sold items in transit FOB Destination – check
records
 Purchase in transit FOB SP – look for documents
 Sold items – segragate
 If not yet sold/conditions not yet made – include in
count
BILL OF LADING & its pertinent documents in FOB
 Contract: courier accepted and agreed to
delivery
 Source Document: issues bill of lading to sender
to be sent to recipient
 BOL to claim the shipment
COUNT PROPER (Actual Count) – DURING
1. Comprehensive Instructions
2. Be curious, ask for client’s policy
 Importance of UTB
3. Recconcile Auditor Samples & Checker (checks
everything)
 Both checker & auditor reconciles count tags
4. Discrepancy => recount
5. Sampling: include material & nonmaterial items
6. Exercise professional skepticism
7. Beg rollforward (Actual count) + Transaction
purchase (sales) = End per rollfoward VS per record,
end.
Audit of AP and Purchases
To remember:
a. Authorized purchase
b. Stolen inventory
c. AP those that are delivered
Accounts to be audited in Purchases
 Ending Inventory & COGS: absorbs purchases