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Inventory Auditing

In: Business and Management

Submitted By azsndvl111
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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)..
Inventory audits usually start when auditors meet with a company’s owner or manager. Auditors will discuss the company’s business operations and how inventories are maintained. This meeting provides auditors with background on the company and specific areas that should be tested during the audit. Manager and owners may also provide auditors with information regarding the company’s internal controls and operating procedures for managing inventories. This information will give auditors an idea of how to...

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