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Are the following audit procedures, to be performed before the inventory count, valid?
1)Discuss with management whether it has experienced significant problems with inventory in past years. This is to give an indication as to whether the auditor needs to perform additional procedures during the count.
2)Test the client’s controls over inventory in order to assess how much reliance can be put on their inventory system during the count.
1 Correct.
2 If a count is performed, controls over inventory are largely irrelevant for closing stock purposes: what is there is there. Controls are important to ensure that the business operates without losing stock etc. Part of internal control is to safeguard assets.
Does the auditor require client’s permission before sending a letter requesting direct confirmation of inventory balances held at y/e from any third party warehouse providers?
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