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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[21:42:04] Ansi: SESSION 11 - Audit of specific items - Inventory
[21:42:13] Ansi: well today we start a veeeeeeeeeerrry important topic
[21:42:24] Ansi: it is tested all the time
[21:42:35] Ansi: and in every past paper u get at least 15 marks for it
[21:42:37] Ansi: or even
[21:42:39] Ansi: up to 35
[21:42:50] Ansi: based on substantive testing
[21:42:58] Ansi: do u guys remember what substantive testing is ?
[21:43:46] sfoz: analyical procedures plus
[21:44:05] Ansi: mmm yea but
[21:44:07] Ansi: not this now
[21:44:11] Ansi: tell me just generally
[21:44:15] Ansi: what is substantive testing
[21:44:18] stasi: use it when u audit the balance sheet items - u substantiate the numbers
[21:44:31] Ansi: lol ..u replied my future question stasi :))
[21:44:55] Ansi: so that is when u actually test the numbers themselves lik those of balance sheet
[21:45:08] Ansi: while if u think of say test of controls
[21:45:14] Ansi: that's when u test the control system
[21:45:23] Ansi: alright
[21:45:27] sfoz: ok
[21:45:35] Ansi: before moving to audit of specific items
[21:45:42] Ansi: i wanted to ask you a bit about sampling
[21:45:45] Ansi: what is sampling
[21:46:08] accahere: Hi to all
[21:46:11] sfoz: it is the collection of evidence
[21:46:12] Ansi: {accahere} hi
[21:46:19] sfoz: {accahere} hi
[21:46:38] sue888: hi
[21:46:40] accahere: Does anyone use youtube videos?
[21:46:42] Ansi: SUE!!
[21:46:48] sfoz: {accahere} Hi Sue
[21:46:50] stasi: taking a subset of the data
[21:47:14] stasi: hi SUe
[21:47:14] Ansi: yes that is when
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[21:47:19] Ansi: u take some date
[21:47:30] Ansi: out of big amount of date
[21:47:31] Ansi: data
[21:47:41] Ansi: say u have
[21:47:48] Ansi: lots of similar transactions
[21:47:51] Ansi: how is that amount called
[21:47:54] Ansi: in audit
[21:48:08] sue888: hi Stasi
[21:48:31] accahere: Try youtube videos ACCA f8 lectures/RCSBelfast very very good assistance.
[21:48:39] stasi: population?
[21:48:40] Ansi: {accahere} thank you , we will check
[21:48:43] Ansi: {stasi} right!
[21:48:49] Ansi: that is population
[21:49:01] Ansi: so for sampling u take some of items out of this poplulation
[21:49:06] Ansi: but it should be homogeneous
[21:49:16] Ansi: so all items should share common characteristics
[21:49:23] stasi: yes
[21:49:25] Ansi: plus it makes sense for huge population
[21:49:27] Ansi: and small items
[21:49:33] Ansi: and i u have jsut 3 big items
[21:49:37] Ansi: it doesn't make sense to test just one
[21:49:48] Ansi: okay
[21:49:50] Ansi: now
[21:49:58] Ansi: audit itself
[21:50:05] Ansi: syllabus asks you to be able to test
[21:50:08] Ansi: inventory
[21:50:11] Ansi: receivables
[21:50:22] Ansi: payables, accruals , provisions , and contingencies
[21:50:25] Ansi: bank and cash
[21:50:32] Ansi: TNCA and NC liabilities
[21:50:39] Ansi: and share capital , reseverves etc
[21:50:45] Ansi: of those ..most examined is receivables
[21:50:49] Ansi: and inventory
[21:50:55] Ansi: never examined ...share capital
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[21:50:57] Ansi: and all that
[21:51:13] Ansi: let's start with inventory
[21:51:14] stasi: ok
[21:51:25] Ansi: here you have 3 main things
[21:51:28] Ansi: tests
[21:51:30] Ansi: stock count
[21:51:32] Ansi: cut off
[21:51:37] Ansi: and NRV valuation
[21:51:47] Ansi: we could discuss endlessly here
[21:51:57] Ansi: so i guess the best way is just to go to examples
[21:52:11] sfoz: ok
[21:52:16] stasi: k
[21:52:33] Ansi: did anyone work out lsbf lectures?
[21:53:03] stasi: yeah
[21:53:06] stasi: but notes at home
[21:53:09] sfoz: no
[21:53:21] Ansi: stasi, it means u didn't listen to those examples?
[21:53:23] Ansi: or u did
[21:53:46] stasi: I listened
[21:53:51] Ansi: sigh , okay
[21:53:56] Ansi: let's search for something else
[21:55:13] Ansi: okay
[21:55:29] Ansi: there is a scenario here
[21:55:30] stasi: we can still do them
[21:55:36] Ansi: i'm thinking to type or not
[21:55:37] sfoz: ok
[21:55:46] Ansi: s in audit scenario is not really relevant :)))
[21:55:49] Ansi: if u have noticed
[21:56:01] Ansi: well okay briefly
[21:56:14] Ansi: U have a publisher and producer of books of poetry
[21:56:24] Ansi: he has been your client for yyears
[21:56:52] Ansi: Manage in charge of audit discussed the audit plan iwth the audit team
[21:56:56] Ansi: of which you are a member
[21:57:02] Ansi: prior to start of work
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[21:57:25] Ansi: manager informed team about things that there has been a growing ineret in poetry
[21:57:29] Ansi: generally
[21:57:50] Ansi: an that the company has acquired a reputation for publishing peotes whio are still relatively unknown
[21:58:07] Ansi: during the audit u determine
[21:59:01] Ansi: 1) Contracts with the poets state that they are given a royalty of 10% on sales . Free copies of bhe
books are provided to the poets and to some organisaions such as copyright libraries and to others, such as reviewers
and the univeristy lecturers.
[21:59:08] Ansi: No roaylties are gien on these free copies
[21:59:34] Ansi: 2) The computerised customer master file contains a code indicating whether a despatch is to earn a
royalty for the author
[21:59:46] Ansi: This code is sown on the sales invoice and despatch note when they are prepared
[22:00:02] Ansi: 3) A computerised royalties file is held , all entries therein bearing the invoice number an date
[22:00:26] Ansi: 4) The company keeps detailed statistics of sales mode, including trends of monthly sales by type of
customer
[22:00:44] Ansi: and of colleges whre its books re recommended as part fo course materail , based on reports from sales
staff
[22:01:00] Ansi: 5) Bookshops have the right to return books which are not selling well
[22:01:13] Ansi: but about 10% of these are slightly damaged when returned.
[22:01:24] Ansi: the company keeps similar records of returns as it does for sales
[22:01:53] Ansi: One of the material Figures in the SoFP of your client is the amount attribuded to inventory of books
[22:02:15] Ansi: State at least TWO inherent risks that may affect the inventory figure and suggest ONE control to
mitigate each risk
[22:02:57] tud21: hello everyone
[22:03:09] Ansi: hi tud
[22:03:19] sfoz: {tud21} hi
[22:03:52] Ansi: i hope u remember what does inherent risk mean
[22:04:13] sfoz: yeah
[22:04:39] tud21: material mistatement
[22:04:52] Ansi: risk of occurence of client risk ... that he made mistake and didn't see it
[22:05:29] stasi: thty neede to find a way to value damaged returned books
[22:05:45] Ansi: is that a risk?
[22:06:12] sfoz: the risk of treating some free cpies as sold?
[22:06:16] stasi: well risk is misstating closing inventory - overvaluing it
[22:06:20] Ansi: what do u mean sfoz
[22:06:42] Ansi: {stasi} yes it can be
[22:06:42] tud21: inentory is not recorded in correct period
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:06:53] Ansi: {stasi} and how to mitigate it
[22:06:56] Ansi: which control to implement
[22:07:09] Ansi: {tud21} right cut of ..why it occurs here
[22:07:45] Ansi: don't stick to examble too much
[22:07:49] Ansi: imagine a publisher
[22:07:51] Ansi: and saler of books
[22:07:57] Ansi: think of books
[22:08:04] Ansi: of how they are produced , then kept
[22:08:06] Ansi: hen used
[22:08:08] Ansi: again and again
[22:08:12] Ansi: just ..imagine it
[22:08:15] Ansi: and u will see all the risks
[22:08:49] sfoz: he publishes poets which are still unknown
[22:09:02] tud21: risk is that inventory does not exist
[22:09:23] tud21: so auditor need to inspect location
[22:09:38] Ansi: {sfoz} and?
[22:10:08] Ansi: {tud21} hm ..interesting , but yea
[22:10:21] Ansi: just inspection is already a procedure
[22:10:30] Ansi: here we need to suggest
[22:10:33] Ansi: what client should do
[22:10:37] Ansi: to mitigate risk
[22:10:44] Ansi: and not what auditor does
[22:10:49] Ansi: when he finds error or checks
[22:11:42] Ansi: guys
[22:11:44] Ansi: wake up!!
[22:11:48] Ansi: time is going :))
[22:11:49] sfoz: lol
[22:12:07] $amad_$uperstar: :no:
[22:12:29] tud21: I think i migt not un/stand ques
[22:12:38] Ansi: question is about risks
[22:12:39] Ansi: say
[22:12:44] Ansi: if books are not kept well
[22:12:47] Ansi: what happens to them?
[22:12:50] stasi: tthey shoulkeep damaged books separate so thepryper ly can ovalue them instead of mixing with good
books
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:13:02] tud21: risk that it might be stolen
[22:13:07] $amad_$uperstar: fradulent practices
[22:13:08] Ansi: {stasi} yea as option
[22:13:09] tud21: damged etc
[22:13:13] sfoz: they loose their value
[22:13:15] stasi: i'm sticking :(
[22:13:28] Ansi: {tud21} okay that is one
[22:13:31] Ansi: {tud21} right
[22:13:34] $amad_$uperstar: wrong budgeting
[22:13:37] tud21: damge books should be priced diffrerently
[22:13:37] Ansi: yes sfoz
[22:13:40] $amad_$uperstar: forecasts
[22:13:43] Ansi: hoow to mitigate it
[22:13:44] sfoz: yes
[22:13:48] $amad_$uperstar: mismagt of capital
[22:13:53] tud21: so we would look at valuation
[22:13:57] $amad_$uperstar: liqudity risk
[22:14:14] $amad_$uperstar: misapropration of assets
[22:14:14] Ansi: {tud21} yea
[22:14:15] Ansi: okay
[22:14:21] Ansi: if books deteriorate
[22:14:22] Ansi: u need
[22:14:26] $amad_$uperstar: delay in sale orders
[22:14:27] Ansi: to create better conditions
[22:14:35] $amad_$uperstar: penalties for dat aswel
[22:14:37] Ansi: they should be stored in location with air conditioning
[22:14:49] Ansi: and they must be kept in saleable state
[22:14:55] Ansi: if for example
[22:14:57] tud21: the auditor should review the listing to ensure that it is mathematically correct
[22:14:58] Ansi: people are not intereted
[22:15:06] Ansi: in some books
[22:15:07] Ansi: so u have
[22:15:09] Ansi: slow moving items
[22:15:20] Ansi: how to deal with that?
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:15:59] Ansi: it's a bit within topic of last sesions, but you should know it
[22:15:59] $amad_$uperstar: ageing analysis
[22:16:26] Ansi: well i'm not sure whether it's ageing analysis here ..can u explain
[22:16:36] Ansi: here u simply need to keep records
[22:16:44] Ansi: to find out which items are not well solf
[22:16:46] Ansi: sold
[22:16:58] Ansi: as for defective or damaged books
[22:17:03] Ansi: as u said they shoul be kept seprate
[22:17:14] $amad_$uperstar: ryt'
[22:17:19] tud21: like inventort count
[22:17:23] Ansi: and inventory count at the end of each period shoul be implemented
[22:17:24] Ansi: yes
[22:17:35] Ansi: as for stolen books
[22:17:38] Ansi: cases of theft
[22:17:43] Ansi: how to mitigate/
[22:18:08] Ansi: i guess
[22:18:12] Ansi: by securing location
[22:18:18] Ansi: and modes of transportation
[22:18:26] Ansi: say there can be
[22:18:30] Ansi: special restriction for entry
[22:18:32] Ansi: of personel
[22:18:45] Ansi: only authorised people can enter the location and deal with books
[22:18:51] Ansi: and those are checked
[22:19:03] Ansi: as we mentioned inventory count
[22:19:10] Ansi: there is always a risk that this count is done badly
[22:19:14] Ansi: at the year end
[22:19:19] Ansi: so u always end up having wrong numbers
[22:19:22] tud21: proper clasicifaction
[22:19:24] Ansi: how to mitigate this risk
[22:20:01] stasi: have regular counts
[22:20:13] sfoz: to have an inventory count in the middle of the year
[22:20:15] Ansi: {stasi} regular countrs and if those are badly done?
[22:20:39] tud21: observe the inventory count
[22:20:47] Ansi: observe
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:20:52] Ansi: or hire independant counters
[22:20:59] Ansi: or make
[22:21:01] Ansi: different teams
[22:21:02] Ansi: of counters
[22:21:03] stasi: reconcile computer baance with actual count
[22:21:06] Ansi: for different areas
[22:21:07] Ansi: locations
[22:21:12] Ansi: possible stasi
[22:21:16] Ansi: interesting one
[22:21:24] Ansi: just in case if those who enter data to base
[22:21:27] Ansi: don't make too many mistakes
[22:21:33] Ansi: and that it is updated regularly
[22:21:38] Ansi: which is ...not always done
[22:21:49] Ansi: now about cut off
[22:22:03] Ansi: here cut off might be poor as theere can be movements of goods
[22:22:07] Ansi: during inventory count
[22:22:11] Ansi: how to deal with that
[22:22:30] sfoz: stop movements of goods during counts
[22:22:35] Ansi: right!
[22:22:35] stasi: could close for a day
[22:22:39] tud21: no one person should do a specific area
[22:22:47] Ansi: and if someone returns u book
[22:22:51] Ansi: just keep them seperately
[22:22:53] Ansi: while u count
[22:22:57] stasi: yes
[22:23:12] Ansi: hm
[22:23:17] Ansi: now a strage here
[22:23:20] Ansi: here how they say
[22:23:40] Ansi: Goods on sale or return are held by customers buy should be included within inventory until the return
period is passed
[22:23:55] Ansi: stasi , do u understand this one
[22:23:57] Ansi: or sfoz
[22:24:38] sfoz: kind of
[22:24:54] Ansi: well yea i gues
[22:24:55] Ansi: s
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:24:57] Ansi: for prudence
[22:25:00] Ansi: so how to manage it?
[22:25:28] Ansi: to keep records of those books on sale and or return
[22:25:36] Ansi: and ensure that those are among your inventory
[22:25:37] Ansi: that's it
[22:25:46] Ansi: now anothe part
[22:25:50] sfoz: ok keep records
[22:25:52] Ansi: closer to current topic
[22:25:54] Ansi: ye
[22:26:16] Ansi: The management of Redburn Co hav e told you that inventory is correctly valued at the lower of cost
and NRV
[22:26:33] Ansi: You have already satisfied yourself that cost is correctly determined
[22:26:37] Ansi: first one
[22:26:41] Ansi: well it's funny
[22:26:46] Ansi: DEfine NRV ?
[22:28:19] Ansi: i guess no one is going to reply such thing
[22:28:20] Ansi: well oka
[22:28:24] sfoz: cost of inventory less cost to make the sale
[22:28:33] Ansi: market value of sales price
[22:28:36] Ansi: less costs to sale
[22:28:45] Ansi: it's not really cost of invnetory
[22:28:48] Ansi: but sales price
[22:28:50] sfoz: ok
[22:28:52] Ansi: less costs to make this sale
[22:29:00] stasi: Net realisabalel
[22:29:06] Ansi: today at forum someone asked
[22:29:08] stasi: value
[22:29:16] Ansi: why inventory shoudl be ketp at lower of sales and NRV
[22:29:36] Ansi: well nevermind ..:)
[22:29:51] Ansi: State and explain the purpose of FOUR precedures that you should use
[22:30:02] Ansi: to ensure that the NRV of the inventory is at or above cost
[22:31:08] sfoz: inspect the goods for physical defect
[22:31:44] Ansi: okay u inspect and
[22:31:45] stasi: Check out another store to see price goods sold at and compare to see if they are being sold at more or
less than client has on the market
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:31:47] Ansi: if u found it?
[22:31:56] Ansi: {stasi} yes
[22:32:22] sfoz: ok
[22:32:25] Ansi: well
[22:32:29] Ansi: an obvious one here
[22:32:30] Ansi: simply
[22:32:33] Ansi: go get market price
[22:32:41] Ansi: the price for how much similar goods are sold at market
[22:32:45] Ansi: price of competitors etc
[22:32:52] Ansi: if it's higher , then it's higher
[22:33:10] Ansi: as for Enquiry
[22:33:13] Ansi: jjust go and ask
[22:33:16] Ansi: your client
[22:33:22] Ansi: is NRV higher?
[22:33:25] Ansi: he says yeaaa sure
[22:33:34] Ansi: and here inspection comes
[22:33:43] Ansi: because you can't just trust y our client
[22:34:12] Ansi: well this question is really tricky
[22:34:17] Ansi: i look at answer now ..huf
[22:34:18] Cody: inspect the latest purchase invoices from the suppliers
[22:34:46] Ansi: {Cody} yea
[22:34:54] Cody: thank you
[22:35:02] nyzfynest786: which question u guys working
[22:35:12] Ansi: dec 09 , question 1
[22:35:23] nyzfynest786: can u tell me name of the question
[22:35:34] Ansi: Redbrn Co
[22:35:40] nyzfynest786: ooo yea i remm doing that
[22:35:42] Ansi: what about damaged books
[22:35:48] nyzfynest786: yess payroll system
[22:35:59] Ansi: {nyzfynest786} please , wait tll next question :)
[22:36:04] Ansi: we are almost done here
[22:36:12] nyzfynest786: o ok , its ok i done that anyway
[22:36:18] Ansi: good
[22:36:27] Ansi: so what about damaged books
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:36:29] sfoz: provision should be made for the 10% of damaged book
[22:36:42] Ansi: provision ? why
[22:36:45] Cody: to reassess the value of the damaged books from the client's book
[22:36:54] nyzfynest786: extra cost determined that will be incurred on books
[22:37:11] nyzfynest786: to get them in fixed condition
[22:37:13] Ansi: {Cody} yes
[22:37:17] Ansi: u need to see
[22:37:24] Ansi: how much they costed in past
[22:37:31] Ansi: only by this you can get nrv
[22:37:36] sfoz: well
[22:37:42] Ansi: otherwise for damaged one it can simply be nil
[22:37:47] Ansi: or very low
[22:38:07] Ansi: okay
[22:38:12] Ansi: please work out this question
[22:38:13] Cody: it depends on the experience of the audit staff to discuss this point
[22:38:15] Ansi: it's dec 09
[22:38:31] Ansi: because ottherwise you'll keep giving a bit irrelevant answers :)
[22:38:48] sfoz: phew
[22:38:51] Ansi: {Cody} it always depends
[22:38:53] Ansi: :)) haha
[22:39:01] Ansi: it was a hard one
[22:39:05] Ansi: i could give u easy one
[22:39:07] Ansi: but the problem is that
[22:39:09] Ansi: exam is hard
[22:39:24] Ansi: okay go back to where we started from
[22:39:36] Cody: to consider the points:- AEIOU &...
[22:39:49] Ansi: three main checks for inventory
[22:39:52] Ansi: first stock count
[22:39:59] Ansi: so
[22:40:08] Ansi: let's take a different case
[22:40:17] Ansi: well say you audit a company
[22:40:30] Ansi: and you are planning work on inventory count
[22:40:41] Ansi: Company manufactures textiles
[22:40:45] Ansi: different things
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:40:55] Ansi: they don't have perpetual inventory suystem
[22:41:02] Ansi: that means no computerised one
[22:41:16] Ansi: so each time you do stock count
[22:41:23] Ansi: you go to warehouse and actually count
[22:41:34] Ansi: a full stocktake is made each 3 months
[22:41:49] Ansi: There is no intenral audit dempertment
[22:41:52] Ansi: so
[22:41:56] Ansi: First part
[22:42:08] Ansi: describe the work that you will carry out PRIOR
[22:42:16] Ansi: to the commencemnt of the inventory count
[22:42:21] Ansi: 4 marks
[22:42:26] tud21: ensure that inventoey sheets are pre numbered
[22:42:29] Ansi: that means 4 sensible ..bits
[22:42:39] Cody: request the client stock sheet first
[22:43:04] Ansi: tud, i think that's rather at stock count
[22:43:06] Cody: cast and calculate the value of the stocks
[22:43:07] Ansi: then prio
[22:43:09] tud21: proper classcification
[22:43:17] Ansi: guys
[22:43:21] makhdoom5: first is planing in that u have to decide a team to take stock take
[22:43:24] Ansi: which word i wrote in big letters
[22:43:27] tud21: Finish good/Raw material and Wip
[22:43:44] Ansi: {makhdoom5} RIGHT
[22:43:51] stasi: call them and organise date
[22:43:52] Ansi: at this stage
[22:43:54] makhdoom5: yes
[22:43:56] Ansi: it's all about planning work
[22:44:05] Ansi: how u decide
[22:44:07] tud21: oh sorry
[22:44:08] Ansi: how u contact client?
[22:44:20] makhdoom5: yes
[22:44:44] Ansi: {stasi} ah yes u said it
[22:44:46] Ansi: call
[22:44:48] Ansi: so first of all
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:44:49] Cody: mail to them or make a phone call as well
[22:44:53] Ansi: telephone the client
[22:44:55] Ansi: yes or mail them
[22:45:00] Ansi: but better phone :)
[22:45:03] Ansi: and confirm
[22:45:05] makhdoom5: yes easy and quick mean
[22:45:06] Ansi: the date when u come
[22:45:12] Ansi: for the stock count
[22:45:14] Ansi: next
[22:45:20] Ansi: what else u need to do
[22:45:23] Ansi: before actual stock count
[22:45:28] Cody: to confirm the date when we come to join the stock take at the b/s date
[22:45:29] makhdoom5: it must not be regular day
[22:45:34] tud21: whether assistance of audit expert is required
[22:45:42] makhdoom5: u must have stoped the production
[22:45:51] Ansi: {tud21} well ye u need to check it
[22:45:52] sfoz: stop stock movement
[22:46:04] Ansi: {makhdoom5} yes u need to agree about it
[22:46:17] Ansi: {sfoz} yea , we told that in previous example
[22:46:17] tud21: location at which inventory is held
[22:46:17] makhdoom5: yes
[22:46:23] Ansi: but
[22:46:24] Ansi: guess what
[22:46:26] Ansi: that is already
[22:46:34] Cody: stop the production!
[22:46:34] Ansi: part of procedure
[22:46:36] Ansi: at count
[22:46:39] Ansi: not prior
[22:46:48] Ansi: so if at exam u provide it in prior part
[22:46:51] Ansi: u will not get mark :)
[22:46:59] sfoz: ok
[22:46:59] makhdoom5: so cheak that all stock area must be divided into sub devision
[22:47:18] tud21: whether proper instructions have been issued by the client for the count
[22:47:28] Ansi: however instead of that you could say
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:47:31] Cody: in proper manner to classify the raw materials and wip
[22:47:33] Ansi: how u will deal with WIP
[22:47:34] makhdoom5: and every devidion u assign a team
[22:47:34] nyzfynest786: {Ansi} before stock count will auditor go to warehouse where inventory held to check if their in
good condition not damaged
[22:47:38] Ansi: how u will deal with movements
[22:47:40] Ansi: etc
[22:48:16] Ansi: {nyzfynest786} that is during
[22:48:21] tud21: while counting no sales should be taking place
[22:48:27] Ansi: {makhdoom5} ys
[22:48:28] makhdoom5: yes during
[22:48:29] nyzfynest786: im not saying during before count i mentioned
[22:48:30] Ansi: {Ansi} yes
[22:48:33] Ansi: {Cody} yes
[22:48:35] nyzfynest786: because during count that will be difficult to do
[22:48:45] makhdoom5: that is a major purpose of count
[22:48:51] Ansi: {nyzfynest786} well ..in answer to that question
[22:48:54] Ansi: they place it to during
[22:48:59] Ansi: or AT stock count
[22:49:00] nyzfynest786: ok
[22:49:01] Cody: sure, no sales occurred in stock take especially in manufacturing co
[22:49:03] tud21: I'm confused
[22:49:03] nyzfynest786: thanks
[22:49:10] Ansi: okay
[22:49:13] Ansi: bits that u didn't mention
[22:49:17] Ansi: procedures
[22:49:27] Ansi: you will need to inspet stock count procedurs
[22:49:33] Ansi: to verify whether they are adequate
[22:49:34] nyzfynest786: oh yes
[22:49:40] makhdoom5: yes
[22:49:43] sfoz: yes
[22:49:43] nyzfynest786: and their usually manuals for that also right ansi
[22:49:44] tud21: procedure include physical inspection
[22:49:45] Ansi: and you will need a invoilve junior auditors
[22:49:49] Ansi: to attend stock count
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:49:50] tud21: obervation
[22:49:51] tud21: etc
[22:49:56] Ansi: and give thsoe intructions
[22:50:01] Ansi: u are not going just to count all yourself
[22:50:02] Ansi: :))
[22:50:24] Cody: dissect the raw materials, wip and finished goods ; and understand the locations where they are
placed
[22:50:26] Ansi: {tud21} might inlucde
[22:50:31] Ansi: well i guess it will
[22:50:37] Ansi: imagine u cometo warehourse
[22:50:41] Ansi: of course u will want to look at stock
[22:50:48] Ansi: befoer dealing with all that
[22:50:56] Ansi: okay
[22:51:00] Ansi: now
[22:51:06] Ansi: state
[22:51:13] Cody: get the map of the warehouse from the clients
[22:51:21] Ansi: procedures you wil check and the work you will carry out during the inventory count
[22:51:22] makhdoom5: yes
[22:51:26] tud21: u need to send persons in teams
[22:51:29] makhdoom5: maping
[22:51:33] Ansi: to ensure that the company's staff have accurately recorded the stock
[22:51:34] makhdoom5: and devision
[22:51:51] tud21: person who do not work in a particular area is better to used
[22:51:54] makhdoom5: u tag any counted area
[22:52:03] Ansi: right
[22:52:04] Cody: division of labour to count the stock sheet to physical stock and vice versa
[22:52:04] Ansi: what u say
[22:52:09] makhdoom5: and count which is not counted
[22:52:12] Ansi: you need to have warehosue devided to areas
[22:52:20] Ansi: by viewing the map
[22:52:20] makhdoom5: no deat
[22:52:24] makhdoom5: dear
[22:52:24] Ansi: {Cody} es
[22:52:25] Ansi: yes
[22:52:34] Ansi: {makhdoom5} it's not my answer
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:52:35] Ansi: :)
[22:52:36] tud21: u need proper supervison at stock count
[22:52:38] Ansi: it's lsbf
[22:52:41] makhdoom5: the whole if u count any one
[22:52:43] Ansi: all the nos to them
[22:52:47] makhdoom5: can forget
[22:52:58] makhdoom5: so we must divide inventory
[22:53:06] makhdoom5: into some batches
[22:53:10] Ansi: true tud
[22:53:11] Cody: please request the client to provide the above infor before start the audit work
[22:53:22] Ansi: okay
[22:53:26] makhdoom5: and all we do in same warehouse
[22:53:30] tud21: I'm so weak i feel like i'm gonna faint
[22:53:31] Ansi: okay
[22:53:37] Ansi: look
[22:53:40] Ansi: back to start
[22:53:45] Ansi: during stock take
[22:53:49] Ansi: u do 2 main things
[22:53:53] Ansi: u wathc what people do
[22:53:54] Ansi: and
[22:54:00] Ansi: visit stock lines
[22:54:02] Ansi: make tests
[22:54:07] Ansi: and recompute things
[22:54:12] makhdoom5: yes
[22:54:14] Ansi: u covered areas
[22:54:19] Ansi: and u said about stock sheets before
[22:54:20] makhdoom5: yes
[22:54:29] Ansi: u need to check that thos sheets are provided
[22:54:38] Ansi: u mentioned organisation
[22:54:40] Ansi: plus
[22:54:43] Ansi: when u wathc them
[22:54:48] Ansi: u need to see how instructiion ar given
[22:54:50] Cody: we watch the person to count the stock for us and made an audit marks on the worksheets
[22:54:59] Ansi: and you need to ensure that counters are independatnt
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:55:05] Ansi: {Cody} right
[22:55:11] Ansi: plus
[22:55:15] Ansi: u need to check lebelling
[22:55:21] Ansi: if inventoryi s labelled
[22:55:24] makhdoom5: yes
[22:55:28] Ansi: and as for movement
[22:55:33] Ansi: u need to ensure there is no movement
[22:55:39] Ansi: now what about tests
[22:55:43] makhdoom5: yes
[22:56:10] makhdoom5: production must be stoped and mostly the company employee do counting
[22:56:14] Cody: we instruct to mark or label on the 'checked' item and avoid any confusions for the later on
[22:56:25] makhdoom5: so we need workers there
[22:56:32] Cody: sure
[22:56:37] makhdoom5: but the auditor watch them counting
[22:56:38] Cody: we need workers there
[22:56:43] Cody: yes
[22:57:01] Ansi: what about my question
[22:57:02] makhdoom5: arganization workers
[22:57:13] makhdoom5: which one
[22:57:15] Cody: and the auditor watch them counting the no. of stock and verify to the worksheet
[22:57:20] Ansi: yea ..i see
[22:57:25] Ansi: which one :)
[22:57:26] Ansi: for sure
[22:57:37] Ansi: i said what about TESTS
[22:57:39] Ansi: how they do tests
[22:57:52] makhdoom5: u tell
[22:57:56] Ansi: why?
[22:57:58] Ansi: u all speak so much
[22:58:01] Ansi: non stop
[22:58:01] makhdoom5: ssubstantive tests
[22:58:04] Ansi: i'm sure y ou can reply
[22:58:11] makhdoom5: yes
[22:58:19] makhdoom5: but u do better
[22:58:22] makhdoom5: lo
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[22:58:23] Ansi: yes it's about substantive testing
[22:58:24] makhdoom5: lol
[22:58:25] Cody: what tests you prefer?
[22:58:33] Ansi: look
[22:58:37] Ansi: i'm not an examiner
[22:58:42] Ansi: i don't prefer anything
[22:58:43] Ansi: i just ask u
[22:58:46] Ansi: how auditor
[22:58:53] Ansi: would do substative testing
[22:58:56] Ansi: during stock count
[22:58:58] makhdoom5: yes i would prefer to cheak goods recieve notes
[22:59:12] stasi: ask if there are any obsolete items
[22:59:14] makhdoom5: and compare them
[22:59:21] makhdoom5: with assset register
[22:59:25] Cody: not at the stock take!
[22:59:26] Ansi: right
[22:59:33] Ansi: and here what u actually check is
[22:59:37] Ansi: whether stock volumes
[22:59:46] Ansi: that you have in papers
[22:59:49] Ansi: reflect the reality
[22:59:50] Ansi: or not
[22:59:55] makhdoom5: yes
[22:59:55] Ansi: so u take samples
[22:59:58] Ansi: of stok lines
[23:00:03] Ansi: test it
[23:00:09] Ansi: recount stock volumes
[23:00:11] makhdoom5: the goods received is actully there
[23:00:11] Ansi: and that's it
[23:00:12] makhdoom5: ?
[23:00:25] Ansi: GRNs?
[23:00:29] Ansi: i don't understnd
[23:00:31] makhdoom5: yes
[23:00:39] makhdoom5: dear
[23:00:41] Ansi: well if goods are there
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[23:00:46] Ansi: then GRN's also must be there
[23:00:57] Ansi: makhood, could u please avoid using dear :)
[23:00:58] Cody: hopefully
[23:01:00] Ansi: with me
[23:01:01] Ansi: thank u
[23:01:03] makhdoom5: how can u cheak that is the stock there is actully in accounts
[23:01:10] makhdoom5: lol
[23:01:15] makhdoom5: its my habit
[23:01:32] makhdoom5: sorry if i bother u
[23:01:34] Ansi: {makhdoom5} go check documents
[23:01:35] Cody: that is the reason to request the client providing the latest GRN for check
[23:01:39] makhdoom5: i do with all
[23:01:45] Ansi: yeap
[23:01:50] Ansi: alright
[23:01:53] Ansi: we are done with this
[23:02:02] makhdoom5: yes
[23:02:03] Ansi: now about cut off
[23:02:06] makhdoom5: that was fine
[23:02:11] makhdoom5: yes
[23:02:17] makhdoom5: the year ends
[23:02:19] Ansi: say you audit the client
[23:02:24] makhdoom5: and start
[23:02:30] Ansi: and y ou need to check whether cut off is okay or not
[23:02:36] Ansi: can i type the question first?
[23:02:53] makhdoom5: yes
[23:02:56] tud21: yes
[23:02:56] makhdoom5: go on
[23:03:09] stasi: yes
[23:03:11] Ansi: You have been asked by the senior in charge of the audit to carry out checks on cut off
[23:03:33] Ansi: and to identify stock whih may be worth less that cost and to check that is has been valued correctly
[23:03:46] makhdoom5: i see
[23:03:57] Ansi: company has computerised inventory control system
[23:04:02] makhdoom5: that thing is so techinical
[23:04:10] Ansi: makhdom
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[23:04:13] Ansi: when i type the question
[23:04:14] Ansi: please
[23:04:17] Ansi: do not write
[23:04:18] Ansi: ANYTHING
[23:04:25] makhdoom5: ok
[23:04:37] Ansi: You attend a count of all the stokc at the year end
[23:04:43] Ansi: HEre you need
[23:04:44] Ansi: first of all
[23:04:51] makhdoom5: actully i am remembering the last time paper which i failed
[23:05:07] Ansi: To explain the procedures you would perform to confirm that inventory , slaes and purcahses cut off is
accurate
[23:05:11] Ansi: 5 marks
[23:05:16] Ansi: that means 5 procedures
[23:05:45] Ansi: now u can all reply :)
[23:06:15] makhdoom5: i am leaving sorry all dear friends i cant continue
[23:06:21] Ansi: {makhdoom5} sure , good bye
[23:06:26] makhdoom5: bye see u later
[23:06:26] sfoz: now i see i wasn't prepared
[23:06:31] stasi: sample GRNs and GDNs before and after year end
[23:06:33] Cody: do ; grn
[23:06:35] Ansi: {sfoz} at least you are here
[23:06:39] Ansi: {Cody} yes how
[23:06:43] Ansi: {stasi} right!
[23:06:45] Ansi: so for sales
[23:06:47] tud21: obtain and agree inventory listing to general leger
[23:06:47] Ansi: u check what
[23:06:52] Ansi: GRN or GDN?
[23:06:53] Cody: delivery orders/ notes
[23:07:18] stasi: gdn
[23:07:22] Ansi: of course
[23:07:27] Ansi: sales ..means go go from u
[23:07:29] Ansi: so
[23:07:32] Ansi: goods dispatch notes
[23:07:40] Ansi: so u need to check those
[23:07:43] Ansi: PRE year end
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[23:07:46] Ansi: and post year end
[23:07:56] Ansi: Pre year end
[23:08:01] Ansi: GDN
[23:08:05] Ansi: what you acutally check
[23:08:07] Ansi: ?
[23:08:56] tud21: price
[23:09:01] stasi: goods sent b4 yr end are in sales
[23:09:07] tud21: if good value correctly
[23:09:21] Ansi: right
[23:09:25] Ansi: but what does it means
[23:09:26] Ansi: it means
[23:09:33] Ansi: that you need to check that those are not in inventory
[23:09:35] Ansi: it was before year end
[23:09:41] Ansi: so that measn they must have been sold
[23:09:45] Ansi: as for transactions
[23:09:51] Ansi: u need to ensure that they are included in sales
[23:09:54] Ansi: and receivables
[23:09:56] Ansi: as if u made sale
[23:10:01] Ansi: u are supposed to get receviables
[23:10:34] Ansi: now
[23:10:38] Ansi: post year end GDN
[23:10:41] Ansi: what you check in those
[23:10:52] Ansi: think in same way as for Pre year end ones
[23:11:09] tud21: date
[23:11:12] Ansi: :)
[23:11:16] tud21: lol
[23:11:34] Ansi: it is post year end sales
[23:11:38] Ansi: u check only current year
[23:11:40] Ansi: what does it mean
[23:12:33] Cody: no, not current year
[23:12:55] Ansi: u do
[23:13:00] Ansi: here u check just current year
[23:13:02] sfoz: for post year end it's like events after the balance sheet, you chech the valuation of good, NRV
[23:13:03] stasi: that sanes oand tgoo ds in in lnventorynot included in sales
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[23:13:05] sfoz: ?
[23:13:17] Ansi: it's not really about it sfoz
[23:13:22] Ansi: oh stasi ..
[23:13:27] Ansi: well stasi wanted to say that
[23:13:27] sfoz: lol
[23:13:27] stasi: not in sales but in inventory
[23:13:30] Ansi: right
[23:13:32] stasi: :(
[23:13:34] Ansi: because it's post year end
[23:13:36] Ansi: that means
[23:13:40] Ansi: AT year end
[23:13:45] Ansi: they should tstill be
[23:13:48] Ansi: in inventory
[23:14:03] Ansi: and that transcaction is excluded from sale
[23:14:05] Ansi: and receivables
[23:14:15] Ansi: all for this year ..at year end
[23:14:17] Ansi: there is no sale
[23:14:29] Ansi: now as forPurchases cut off
[23:14:37] Ansi: same but Goods received notes
[23:14:43] Ansi: Pre Year end GRNs
[23:14:45] Ansi: what do u check
[23:15:36] stasi: in purchases andpaya bles and inventory
[23:15:50] Ansi: right
[23:15:57] Ansi: :)
[23:16:07] stasi: post yr end...
[23:16:08] Ansi: transaction should be includedi n purcahses
[23:16:13] Ansi: and inventory
[23:16:18] Ansi: and payables
[23:16:21] Ansi: now post year end
[23:16:34] stasi: excluded from purchases, payables and inventory
[23:16:37] Ansi: yeap
[23:16:41] Ansi: so u got 4 points
[23:16:46] Ansi: what about 5th one
[23:16:57] Ansi: here u need to mention directional testing
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[23:17:03] Ansi: remember about it stasi/
[23:17:03] stasi: yes :)
[23:17:03] Ansi: ?
[23:17:12] stasi: match invoices to notes
[23:17:42] Ansi: well
[23:17:43] Ansi: not only
[23:17:48] Ansi: directional testing
[23:17:58] Ansi: is about going the opposite direction
[23:18:11] Ansi: usually u check
[23:18:38] Ansi: from down to up
[23:18:51] Ansi: u start
[23:18:55] Ansi: with purchases themselves
[23:19:01] Ansi: then goods received notes
[23:19:06] Ansi: they are mateched with inoivces
[23:19:11] Ansi: those go to purchase day books
[23:19:16] Ansi: them to purchase lendger
[23:19:19] Ansi: then to genelra lendger
[23:19:24] Ansi: and trial balance
[23:19:25] Ansi: then FS
[23:19:31] Ansi: and in directional testing
[23:19:38] Ansi: u need to sample number of purchases and liabilitie
[23:19:38] Ansi: s
[23:19:45] Ansi: and sales receivalbes
[23:19:50] Ansi: and verify the existance
[23:19:55] Ansi: of Goods received notes
[23:20:00] Ansi: and GDN
[23:20:01] stasi: yes
[23:20:06] Ansi: in the apporpriateepriod
[23:20:12] Ansi: if
[23:20:20] Ansi: purcahse invoice is recognised as a liability
[23:20:23] Ansi: in the current FS
[23:20:34] Ansi: then we should have received the goods before y.e
[23:20:38] Ansi: see ..vice versa!
[23:20:44] Ansi: and if we reveid goods
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F8 (Int) – Session 11
22/09/2011 – F8 chat room
[23:20:50] Ansi: then we should have pre year end GRN
[23:21:11] Ansi: okay
[23:21:14] Ansi: it's getting late
[23:21:18] Ansi: time to finish this one
[23:21:27] Ansi: next time we will go on with audit of specific items
[23:21:31] Ansi: will stat with receivables
[23:21:35] Ansi: so study well
[23:21:40] Ansi: it's a VERY VERY important topic
[23:21:44] Ansi: thank you for comming
[23:21:46] Ansi: and participating
[23:21:49] Ansi: take care guys
[23:21:50] Ansi: see u!
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