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I do not understand the concept of perpetual inventory count. How the results of count can be verified with final figures in FS. For e.g if there are 12 different types of inventory in 12 different warehouse, each warehouse’s count is done every year in a particular month for e.g if warehouse 1 was counted in may 2017, its next count will be in may 2018.
Now, if the audit is being done for FS year end dec 2018, auditors can inspect reports of inventory count that took place in may 2018, but how they agree the results of count with year end figure in FS… because many movements in warehouse 1 will take place throughout the year HOW DO THEY RELY ON COUNT THAT TOOK PLACE IN MAY…and also next count will happen in may 2019, and its not possible to wait till then… ??
THANKSPerpetual inventory records are records that kept up-to-date for goods movements – in/out. Continuous stock-taking is an internal control – regular periodic counts of physical inventory compared with the inventory records.
If the results of management’s counts showed, for example, that inventory had to be regularly written off because it didn’t exist (e.g. stolen) – management couldn’t rely on the records and would have to do a full inventory count at (or near) the reporting date.
If, however, physical counts show the records to be accurate, management could determine y/e quantities of inventories based on the RECORDS – rather than undertake a full count.As an internal control, continuous counting requires all inventory to be counted at least once a year – high-value items might be counted every month – or even weekly or daily. Where the client has lots of locations, the auditor could visit them on a rotational basis to observe the client’s procedures and obtain evidence that the records are expected to provide a reliable basis for the client to extract y/e quantities.
So – in short – at the y/e, the auditor is auditing quantities per the y/e records – having satisfied himself that controls operated throughout to year.
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