Inventory Physical Count

Neither of those!

The reason why an auditor attends a physical count of inventory, ideally at the year end and only normally where inventory value is considered likely to be material, is to ensure that the clients’ staff are following closely the pre-printed, pre-distributed inventory count instructions

Those instructions have been prepared by management and the auditor has reviewed those instructions to ensure that, in theory at least, the physical count of inventory and concurrent assessment of inventory condition is likely to produce a reliable result of the number of items held by the client as at the year end (and their condition / age)

Of course, those physical data then need to be valued – but that’s a task for after the count has been completed

On the occasion of the auditors’ review of the instructions, where it may appear that, in theory, there are matters that could be improved, these improvements will be suggested to management in the hope that the instructions will be amended and the likelihood of an accurate count thereby improved

So then comes the day of the actual count and the auditor will attend simply to ensure that those instructions are in fact being carried out. It’s the role of an observer with no actual active participation

The auditor will count a selection of items that have already been counted and recorded and will also count others that have not yet been counted but this is only to ensure, on a test basis, that the work actually carried out by the clients’ staff accords with the checks carried out independently by the auditors

Also, on the date and at the conclusion of the count, the auditor will obtain copies of the “rough” count sheets so as to be able to compare the sheets that were being used at the count showing the same quantities with the transcribed “clean” inventory count sheets that are then used by the accounting department to insert unit values and then cross-extend the product of units multiplied by unit value

But the auditor neither performs the physical count nor does the auditor instruct the clients staff on what to do, and nor does the auditor require those same clients’ staff to report back to the auditor

OK now?