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Hi Dear Tutor, In bpp study text it says attendance at the inventory count can serve as either substantive procedures or test of contros?if there are any weaknesses in the inventory, can we use it for test of controls as well?
thanks in advance
A lot goes on at an inventory count – just because there is some weakness doesn’t mean you can’t perform any tests of controls.
Observing the conduct of the count – physical security of items and whether there are any movements in or out is a test of control.
Confirming that count records have a signature to confirm a second count (by the client) would be a test of control.
Etc …
A lapse in one control does not necessarily mean abandon all tests of controls.are these usefu to apply for test of controls for inventory if there are weaknesses observed?
Observe whether the client’s staff are following the instructions as this will help ensure the count is complete and accurate
Perform test counts to ensure procedures and internal controls are working properly so to gain evidence over existence and completeness of the inventory
Ensure procedures for identifying damaged,obsolete and slow-moving inventory operate properly.Auditors should obtain information about the inventory’s condition, usage, age and in case of work-in-progress and its stage of completion to ensure it is later valued apporiately
Confirm that inventory held on behalf of third party is separately identified and accounted for so to ensure it is not overstated
conclude whether the count has been carried out properly and is sufficiently reliable as basis used for determining the existence of the inventory
Consider whether any amendment is necessary to subsequent audit procedures
Gain overall impression on the levels and values of the inventory held so that auditor may in due course judge whether the figure appearing in the FS are reasonable
thanks in advance
It is not clear what you are asking (“useful to apply …”) and I cannot work through what might be considered a student’s answer to a question – I can only comment in general terms.
If there are weaknesses the auditor does NOT test controls but carries out substantive audit procedures – i.e. tests of details and substantive analytical procedures. Please DO refer to Chapter 20 of our notes and the accompanying lecture.
“consider” is a thought process rather than an audit procedure to obtain audit evidence (“AEIOU”) .
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