...MR1) In observing the client’s annual physical inventory, the auditor’s primary objectives include; * To see to it that all inventory movements (physically or logically) are authorized. * That inventory included in the statement of financial position physically exists. * Ensure that the inventory records only include items that belong to the entity. * And that the inventory quantities have been accurately determined. * Check to see that all purchases and sales of inventory have been recorded in the accounting system. * That disclosures relating to classification and valuation are sufficient. * Inventory is properly stated at the lower of cost and net realizable value. * All purchases and sales of inventory are recorded in the correct accounting period. * That inventory transaction and balance are properly identified and classified in the financial statement Key audit procedure that an auditor would typically perform during and after the client’s physical inventory; The two major steps in the observation of a physical inventory are as follows : * Planning the physical inventory * Taking the physical inventory Planning the physical inventory before conducting the physical count is essential. The auditor should review or prepare the client instructions and should work closely with the client in the planning stage. The inventory should be taken at a time when operations are suspended or minimal. The client has primary responsibility...
Words: 902 - Pages: 4
... | | | | | | | |2. Give examples of tests of controls for auditing the controls |6, 7, 8, 9 |42, 43 | |over conversion of materials and labor in a production process. | | | | | | | |3. Identify and describe considerations involved in the observation|10, 11, 12, 13, 14, 15, 16, 17 |44, 45, 46, 47, 48, 49, 50, 51,| |of physical inventory and tests of inventory pricing and | |52, 56 | |compilation. | | | | |...
Words: 7259 - Pages: 30
...Inventory Auditing Inventory Auditing Inventory is tangible goods held by a company to support production, support activities or for sale or customer service. They are comprised normally of parts, tools, maintenance supplies, raw materials, work in progress, finished goods and waste or by-products (Inventory, 2012). Inventory is often the main item in the current assets category, and must be accurately counted and valued at the end of the accounting period to ascertain a company's profit or loss. Organizations whose inventory items have a bigger unit cost often keep a daily record of changes in inventory (perpetual inventory method) to ensure accurate control. Similarly, companies with smaller inventory item cost most often update inventory records at the end of an accounting period (periodic inventory method) (Inventory and COGS, 2012). The value of an inventory depends on the valuation method used, such as first-in, first-out (FIFO) method or last-in, first-out (LIFO) method (Inventory and Cost of Goods Sold, 2012). Generally Accepted Account Principles require that inventory should be valued on the basis of either its cost or its current market price, whichever is lower to prevent overstating of assets and earnings due to an increase in the inventory's value in inflationary periods (Section 3140: Inventory, 2012).. Methods Inventory audits usually start when auditors meet with a company’s owner or manager. Auditors will discuss the company’s...
Words: 1210 - Pages: 5
...Chapter 7 Audit Evidence Key objectives: 2. Identify the four evidence decisions made by auditors in creating an audit program. 3. Specify the characteristics that determine the persuasiveness of evidence. 4. Know the eight types of evidence used by the auditor, including the quality of each type of evidence. 5. Understand the purposes of audit documentation. The focus in chapter 7 is on the evidence accumulation process, which falls under the third standard of field work. We will be especially interested in the types of evidence, and the characteristics that make that evidence competent or reliable. The auditor must gather sufficient appropriate audit evidence to support the audit opinion. 1. Four Evidence Decisions 1. Which audit procedures to use. 2. What sample size to select for a given procedure. 3. Which items to select from the population. 4. When to perform the procedures. These are planning decisions. The most important decision is reaching an audit conclusion for each procedure based on the evidence. 1. Audit procedures are designed to meet the general audit objectives discussed in Chapter 6, and are laid out in the audit program. 2. Sample Size - Sampling is discussed in 49 detail in chapters 15 and 17. The sample size should be sufficient to reach a conclusion about the population. Sample size may be set by statistical formula, firm policy, or auditor judgment. 3. Sample Selection - Sample selection is a function of the objective of the test, and is also discussed...
Words: 1470 - Pages: 6
...1. What are the assertions the auditor tests when he/she observes the client’s annual physical inventory? Identify the key audit procedures that an auditor would typically perform during and after the client’s physical inventory. Completeness is one of the first assertions that should be tested. This needs to be tested to assure that none of the inventory is missing and also looking to see that there weren't any unauthorized purchases were made. The procedures used to test these assertions would include observing the clients doing their counts of inventory. This way we can see how they do their inventory count and do the counting of the inventory tags ourselves to assure everything is properly done. Also tracing can be done of the items from the physical inventory to the sheets that hold all of the inventory to check that all items are accounted for. Valuation is the next assertion that should be tested. As the auditor, we want to be sure that all of the inventory has the proper value recorded. This makes the financial statements more accurate. The procedures that can be done to test this are analytical procedures and recalculation. Analytical procedures can be preforming different ratios like gross profit calculations and inventory turnover ratio. Also, recalculation of the prices is a good way to test the valuation. There may be errors that can be found by recalculating that maybe the client missed on purpose or accident. Rights and obligations is the next assertion...
Words: 1402 - Pages: 6
...Solutions for Chapter 11 Audit of Acquisition and Payment Cycle and Inventory Review Questions: 11-1. Supply chain management involves the management and control of materials in the logistics process from the acquisition of raw materials to the delivery of finished products to the end user (customer). Supply-chain management involves contracts between buyers and suppliers that specify contract, delivery, and payment terms. In some cases, such as Wal-Mart, suppliers retain title to the goods until they are sold to the buyer’s customers. Wal-Mart’s suppliers have access to Wal-Mart’s inventory records and automatically restock inventory according to that contract. Wal-Mart pays their suppliers when the products are sold to its customers. General Motors has contracts with its suppliers that call for providing tires and other parts based on production schedules and paying suppliers based on the actual production of cars. 11-2. The major controls that a company such as General Motors will consider in such a partnering relationship include: • A contract specifying the requirements of each party to the contract. For example, the contract should specify the following major requirements of the supplier: o Penalties for failure to deliver products on time. o Quality control requirements, including inspection and testing to be done either by the supplier or the purchaser. Most contracts require intensive inspection by the supplier...
Words: 19271 - Pages: 78
...place: Shows less inventory than actual inventory, so net income will be higher than actual. * Shipping documents is missing: This is very serious. There may be chances of fraud. * Goods were received and sat on the dock for up to seven day before the receipt was recorded: This will show understatement in the inventory. And it shows overstatement of net income b. Substantive test is the test of account balances to verify the correctness of the amounts they are design to identify errors and irregularities. In this case misstatement of inventory identified would be considered significantly enough to require substantive testing of inventory. In this case inventory is not entering proper time and missing the records. So auditor has to do substantive test of inventory. c. Substantive testing procedures that evaluate the accuracy, completeness and existence of amounts stated in general ledger accounts and financial statements. In this case substantive testing should performed by physical inspection of inventory, verification of vendors invoice, verification of delivery documentation, tracing of related disbursement records, and ascertaining that the inventory is recorded in appropriated general ledger account, and timing of the transaction record. d. If there is no deficiencies were found in the auditor’s tests of control, auditor doesn’t have to do all substantive tests. They can reduce their work load. They can take continuous inventory. A daily record is...
Words: 814 - Pages: 4
...Introduction : - As per the Chapter – 6 continuous quality improvement of NABH standards, the group has analyzed the current/existing situation of the nursing department and following is the analysis. 5 standards with objective : - CQI.2 The organization identifies key indicators to monitor the clinical structures, processes and outcomes • Objective elements a) Monitoring includes appropriate patient assessment. b) Monitoring includes diagnostics services’ safety and quality control programmes. c) Monitoring includes all invasive procedures. d) Monitoring includes adverse drug events. e) Monitoring includes use of anaesthesia. f) Monitoring includes use of blood and blood products. g) Monitoring includes availability and content of medical records. h) Monitoring includes infection control activities. i) Monitoring includes clinical research. CQI.3 The organisation identifies key indicators to monitor the managerial structures, processes and outcomes Objective elements • Monitoring includes procurement of medication essential to meet patient needs. • Monitoring includes reporting of activities as required by laws and regulations. • Monitoring includes risk management. • Monitoring includes utilisation of facilities. • Monitoring includes patient satisfaction. • Monitoring includes employee satisfaction. • Monitoring includes adverse events. • Monitoring includes data collection to support further study for improvements. • Monitoring includes...
Words: 3295 - Pages: 14
...Chapter 13 Auditing the Inventory Management Process Answer Key True / False Questions 1. The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-01 Develop an understanding of the inventory management process. Topic: Overview of Inventory Management Process 2. A receiving report records the shipment of goods to customers. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-02 Be able to identify and describe the types of documents and records used in the inventory management process. Topic: Types of Documents and Records 3. Sale of finished goods is a part of the inventory management process. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-03 Understand the functions in the inventory management process. Topic: The Major Functions 4. Once the controls in the inventory system have been tested, the auditor sets the level of control risk. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Risk Analysis Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-06 Know how to assess control risk for the inventory system. Topic: Control Risk...
Words: 15455 - Pages: 62
...Based on our findings, we recommended the following: * Replenish all inventories at picking locations at the end of every night shift. * Use continual off-line replenishment of picking location stock throughout the night. * Implement "inventory-by-location" at receiving, warehouse and shipping operations * Move transactional processing and posting receipts, issues, and inventory balance updates from the office to the functional locations at receiving, warehouse, and shipping. * Implement bar coding applications within receiving, warehouse, and shipping. * Begin cycle counting during downtime to increase balance accuracy to 98% * Develop written operating policies, procedures, job instructions, and job descriptions for warehouse operations to stabilize operations, provide sustainability, and to be used to train workers. * Convert the job of the person in the office posting transactions to a full time inventory auditor * Use a separate audit team during monthly physical inventories checking 10% of counts, and requiring a recount when physical count discrepancies are found * Program the current system to automatically produce shipping/delivery invoices * Program the current system to include manual transactions such as pick-up and reship memos, and to sort them with picking lists. The results from the implementation of our recommendations were: * Productivity improvements of 20-30% in warehouse receiving, picking, and...
Words: 1332 - Pages: 6
...Chapter 1: Assurance services: 认证业务 Independent professional services that improve the quality of information for decision makers. Attestation services: 鉴证服务 A type of assurance service in which the public accounting firm issues a written communication that expresses a conclusion about the reliability of a written assertion of another party. Audit of historical financial statements: A form of attestation services, the auditor issues a written report expressing an opinion about whether the F/S is in material conformity (一致) with accounting standards. e.g.: listed company must provide shareholders with annual financial statements that are audited by an independent accounting firm. Review of historical cost financial statements: A form of attestation services, a public accounting firm issues a written report that provides less assurance than an audit as to whether the financial statements are in material conformity with accounting standards. Auditing standards: Establish mandatory (强制) requirements and provide explanatory (解释) guidance to auditors in fulfilling their professional responsibilities in the audit of financial reports. Auditing: Is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be performed by a competent, independent person. Compliance audit: 合规性审计 One of three primary types of audits, a review of an organization’s financial records...
Words: 4162 - Pages: 17
...Chapter 7 – Internal Controls • Key topics: • Know the broad definition of internal control and its purposes, including the objective that is particularly relevant to an audit (i.e. reliability of financial reporting) A process, effected by the entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations (effective and efficient operations), reporting (accurate financial reporting) and compliance (compliance with laws and regulations) • Describe the 5 components of internal control, related examples of each, and how each contributes to the overall control system within an entity (CRIME) 1. Control Environment: The foundation for the other internal control components; it is defined by the standards, processes, and structures that guide individuals in carrying out their duties. Basic principles include: Commitment to integrity and ethical values, Board of directors demonstrates independence from management and exercises effective oversight of internal control, Establishment of effective structure, including reporting lines, and appropriate authorities and responsibilities, Commitment to attract, develop, and retain competent employees, and Holding employees accountable for internal control responsibilities. 2. Risk Assessment: Risk assessment is management's process for identifying, analyzing, and responding to risks from internal and external sources that threaten...
Words: 7297 - Pages: 30
...Inventory is one of the most expensive and important assets to many companies, representing as much as 50% of total invested capital. Managers have long recognized that good inventory control is crucial. On one hand, a firm can try to reduce costs by reducing on-hand inventory levels. On the other hand, customers become dissatisfied when frequent inventory outages, called stockouts, occur. Thus, companies must make the balance between low and high inventory levels. As you would expect, cost minimization is the major factor in obtaining this delicate balance. Inventory is any stored resource that is used to satisfy a current or future need. Inventory is any stored resource that is used to satisfy a current or a future need. Raw materials, work-in-process, and finished goods are examples of inventory. Inventory levels for finished goods are a direct function of demand. When we determine the demand for completed clothes dryers, for example, it is possible to use this information to determine how much sheet metal, paint, electric motors, switches, and other raw materials and work-in-process are needed to produce the finished product. All organizations have some type of inventory planning and control system. A bank has methods to control its inventory of cash. A hospital has methods to control blood supplies and other important items. State and federal governments, schools, and virtually every manufacturing and production organization are concerned with inventory planning and control...
Words: 448 - Pages: 2
...does not contemplate obtaining an understanding of internal control structure. The review does not assess control risk, tests of accounting records and responses to inquiries by obtaining corroborating evidence through inspection, observation or any other audit procedure. It can point out significant matters of the financial statements but does not provide assurance of their accuracy. A review service provides a moderate amount of assurance on the financial statements, and less evidence is necessary to support this level of assurance. Whereas audit provides a high level of assurance. 2. The Limitations of Management assertion of existence: First ZZZ Best auditor George Greenspan performed audit for 12 months ended April 30, 1986. According the case: He confirmed the existence of ZZZ Best major insurance contracts by contacting Tom Padgett. He not only confirmed their existence but also obtained and reviewed copies of all key documents regarding those jobs. However, Greenspan did not inspect any of the insurance restorations. As I understood from the case, If auditor satisfied that these jobs exist by different sources (existence according the paper documents) he is not required to conduct personal on-site inspection. Or if physical observation is not relevant or too costly auditors obtain the next best evidence available. This is the one of limitations of management assertion of existence The next auditor of ZZZ Best Larry Grey (Ernst and Whinney) besides getting evidence...
Words: 1512 - Pages: 7
...positions impact the consumer on different levels, unlike the night-shift clerk the delivery driver has little contact with the client. A delivery truck driver and night clerk are entry level positions. The night clerk ensures that all customers are serviced and that merchandise is readily available for purchasing. Delivery truck drivers are responsible for ensuring products are in the store for the client. Customers expect the store to be opened with proper staffing 24-hours a day and have suitable merchandise to meet their needs. The night shift clerk must have working knowledge of the store technology to complete customer transactions and check inventory. This position requires the ability to maintain a clean, safe and organized environments for customers. A full understanding of inventory tracking, updating and other inventory procedures. The night clerk should have basic knowledge of customer service, cash registers, computers...
Words: 1561 - Pages: 7
