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“Select a sample of items from physical inventory and trace them to inventory records to confirm the completeness of accounting records.”
Professor how does an auditor carry out this procedure where the inventory is composed of homogenous goods. from a population of 5000 goods, a sample of 500goods will always make it seem as if the inventory bal. is complete.
Clearly this isn’t suitable if there is only one product in inventory! (Which nicely illustrates why “learning answer points” is a poor exam strategy – because answer points must be made relevant to the scenario.)
Let’s go with you idea – suppose the inventory is 5,000 bottles of disinfectant – you wouldn’t expect the bottles to be set out individually on shelves – they’re going to be boxed – suppose there are 50 bottles to a box. You would therefore expect 100 boxes in inventory. So you go into the warehouse and there are indeed 100 boxes – but how do you know they each contain 50 bottles? You won’t unless you inspect at least some of them i.e. a sample.
But suppose your inventory is 5,000 kettles or toasters or xboxes …. that are individually boxed/packaged – each will have some unique identifier (serial number) which should be documented in the inventory records. So the auditor can select a sample of serial numbers.
professor i think the audit procedure you explain for 5000 bottles is more applicable when we have to check the EXISTENCE of physical inventory.
For checking the COMPLETENESS of records, we will randomly pick a sample a of boxes (each filled with 50 bottles) with unique identifier and then cross reference with the records to see if records are complete, right?
Of course yes – I was just focusing on the homogeneity issues. Absolutely – for my 2nd scenario – that would be the same as completeness of non-current assets – inspect an asset and confirm it is recorded in the asset register. For my first scenario you would count all the boxes – having sampled some boxes at random. If there were 110 boxes, those responsible for the count would have to get busy finding the empty/less than full boxes(!)
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