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Dear Sir/Madam,
I want to ask a few questions concerning “Monthly continuous/perpetual inventory count” in this question.
–> Question “Recorder does not undertake a year-end inventory count, but carries out monthly continuous (perpetual) inventory counts and any errors identified are adjusted in the inventory system for that month.”
–> Audit risk “Increased risk of material misstatement related to the completeness, existence and
valuation of inventory under the perpetual inventory system, if all inventory is not counted at least once a year.”1. Does “monthly continuous/perpertual inventory count” here mean “physical count conducted monthly” or it just concern “the program that continuously estimates your inventory based on your electronic records”?
2. In case it is a physical count, do they count the whole inventory at the business at that time or just a small quantity? (as I see in the explanation “all inventory is not counted at least once a year.”)
3. In case it is a physical count, this “monthly count” take place whenever during the month or at month end? Should it taken at every month end and count the whole inventory during the year, I do not feel the need to carry out a year-end count?I look forward to your explanation. Thank you !!
1. “perpetual” and “continuous” stocktaking methods mean physical counting of inventory throughout the year. In Recorder, counts are monthly – but in supermarkets, for example, they might be daily.
2. A sample. A full physical count is only ever necessary to determine the value of inventory at a reporting date.
3. Continuous/perpertual inventory counts are compared against “book” quantities – differences, if any, should be investigated. It is a control activity. If operating effectively, there is no need for a full physical count at the year end.
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