Step 7
Inventories
Account Number 1600
GIFI Number 1120
Financial statement presentation (CICA 3030.10-.13)
Inventory
Work in progress (for example, in the case of professional service firms)
A common practice is to show the inventory as one figure called “Inventories” on
the balance sheet and give the breakdown between raw materials, work in
progress, and finished goods in the notes.
In addition to the breakdown of the individual components of inventory, the basis
of valuation should be disclosed in the significant accounting policies.
Includes
Inventories on hand
Work in progress
Finished goods
Inventories in transit
Inventories on consignment
Allowance to reduce inventory from cost to net realizable value
- The file should include a confirmation from the client regarding any inventory on hand.
- With a Notice to Reader, the confirmation from the client can be relied on.
- With a Review Engagement working paper, a detailed listing of the inventory by major
categories is necessary. If the inventory balance is less than the materiality level assigned
in the file, professional judgment can be used as to detail of the inventory listing.
With the inventory, it is important to understand the nature of the client’s business and if the
inventory levels are reasonable for the kind of business, the client has.
As each inventory account is reconciled, cross-reference the account to the (D) lead sheet.
Quirks to be Aware of
1.
Complete the D.1 checklist for review engagement files.
2.
Confirm the addition on several pages of the inventory to ensure there are no material
errors that have been made by the client when they counted the inventory.
3.
Look at the inventory levels for the last few years. If there are large differences make
sure you understand were they come from.
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