Audit of Inventory

• Inventories are assets of a company that has significant value. That is why the audit of the supplies necessary to oversee the existence of the firm's inventory.
  
  
  
  
  
  The purpose of supplies including:
  •        To know with certainty the existence of inventory.
  •        To know that the cut-off has been implemented with good
  •        To know that stock has been assessed in accordance with IAS
  •        Inventory slow moving (slow moving), worn, damaged, can be properly identified and reserved a sufficient number of
  •        To find out the inventory has been carefully calculated
  •        To know the inventory as collateral has been identified and clearly disclosed in the notes to financial statements
  Some stages of the audit procedures that auditors should be done in the conduct of inventories are:
  §  Business understanding Clients - sufficient understanding of the business enterprise is fundamental to the audit of inventory. The questions raised by the auditor through questionnaires Understanding Business and Nature of Business Client will provide the auditor an understanding of the unique aspects of business and type of business, such as seasonal and cyclical factors, the nature of the financial, sales methods and policies, conditions of competition, material standard and its source, labor and manufacturing facilities related to the wisdom of the company's operations as well as the characteristics of information systems including methods of costing. This understanding enables the auditor to reach conclusions about aspects of financial statements in connection with the inventory.
  §  Assessment of Internal Controls - the purpose of internal control over inventory is to ensure that:
  ·         The existence of adequate controls against stock transfer,
  ·         All inventory transactions have been recorded and classified appropriately
  ·         Count physical inventory has been carried out in accordance with established procedures,
  ·         Cost of inventory has been precisely determined,
  ·         The adjustment of the slow-moving inventory (slow moving), obsolete and damaged has been done properly.
  §  Substantive Tests - The main purpose of substantive tests of inventory is to provide tangible evidence of the existence and valuation of inventory. Testing includes observation and testing of physical counts (stock taking), the test summary and test prices.
  
  
  
  
  There are several methods of physical inventory counts, among others:
  ·         Calculations carried out a thorough physical once a year on the balance sheet date or at a certain date which was attended by auditors.
  ·         The calculations were carried out continuously over the entire inventory at least once a year
  ·         Recalculation of all of the largest sections by counting at least once a year for other sections.
  
  
  
  
  
  
  
  There are several things to consider auditor in the physical count of inventory, including: 
  ·         During the physical count of inventory, the auditor should ensure that control over procedures income and expenditures or internal movement of goods during the counting took place had been followed properly, to assess the accuracy of separation limit (cut-off) that has been done. If possible, the production process should be suspended during the physical count of inventory or physical count conducted during the absence of revenue and expenditure activities of goods in the warehouse.
  ·         The auditor should consider the possibility of a consignment of goods (deposit) that are not belong to the company, collateral and other
  ·         The possibility of a stock that is not within the company's control, such as items that are in the general location of the warehouse, which is held by the seller of goods, consigned goods and other. For this type of inventory, audit procedures should be done is by doing a direct confirmation in writing or by physical count.
  ·         Auditors must ensure that the supplies in the course really hasn’t been received until the physical count of inventory lasts.