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Hello.
Can you help me understand the procedures below for after the count/final audit of inventory?
Trace the items counted during the inventory count to the final inventory list to ensure it is the same as the one used at the year-end and to ensure that any errors identified during counting procedures have been rectified: verifies completeness.
Inspect any reports produced by the auditors of third party warehouses in relation to the adequacy of controls over inventory.
Inspect any documentation in respect of third party inventory.
How do I generally devise procedures for completeness?
I’m confused about the final audit procedures.Completeness: has all inventory been included.
Needs to have been accurately counted and recorded (hence procedure 1 above (“Trace…”)
Inventory held by 3rd parties needs some evidence of completeness and existence (hence procedure 2.
Similarly procedure 3.
For inventory, completeness and existence are often checked together, typically by doing work on inventory counts.
Hi Sir, I am confused on the below procedure performed to check the value/accuracy of inventory at the year-end:
Compare selling prices to those charged elsewhere. If the prices elsewhere are lower, then the distortion in selling price might affect the value of the inventory. Alternatively if the prices elsewhere are higher, then the company’s prices may occasionally fall below cost. Again any adjustment discovered to be necessary must be quantified.Can you please explain it in a clearer way?
Inventory should be valued at lower of cost and NRV. If other suppliers are selling cheaply, then this might mean that the true NRV is below cost and that inventory has to be written down.
I have no idea what this sentence means: “Alternatively if the prices elsewhere are higher, then the company’s prices may occasionally fall below cost.” Seems rubbish to me!
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