0% found this document useful (0 votes) 299 views 51 pages Test Bank Messier Chapter (13).doc © © All Rights Reserved DOC, PDF, TXT or read online from Scribd Did you find this document useful?0% found this document useful (0 votes) 299 views51 pages Test Bank Messier ChapterOriginal Title:Test Bank Messier Chapter (13).doc You're Reading a Free Preview You're Reading a Free Preview You're Reading a Free Preview If your company maintains physical inventory, then you already know how important proper inventory counts are. Inventory records aren’t just essential to inventory control and supply chain management—they’re a key part of the financial statements and analytical procedures you use to determine everything from profitability to budgets for new projects and initiatives. That’s why inventory audits play such a key role in effective procurement for any successful company. Inventory Audits: The BasicsAs one of many generally accepted accounting principles, inventory auditing relies on analytical procedures to verify the inventory methods for a given business and ensure both physical inventory counts and financial records are accurate and complete. Companies rely on inventory audits because they provide a reliable way to protect the company’s financial health (through accuracy of financial statements) and guard against fraud—intentional or otherwise. Because inventory is classified as a balance sheet account, effective auditing procedures focus on four key aspects: existence, rights, valuation, and completeness.
Inventory may be kept using either periodic or perpetual inventory systems. Periodic inventory systems rely on scheduled physical inventory counts to establish ending inventory balance and the cost of goods sold for the company’s financial records. Perpetual inventory systems are, as the name implies, continuous. They are more versatile and advanced than periodic systems, but also require more labor in the form of counting procedures and recordkeeping. The advantage with a perpetual system is the immediate availability of physical inventory levels and updated accounting records in real-time. In many companies, internal inventory controls are established to minimize risk and maximize process efficiency and inventory accuracy. Examples include restricting physical access to inventory (particularly in public warehouses), separating inventory management and related financial roles, tagging inventory with barcodes, and adding secured intake and outtake protocols.
Potential Inventory Auditing ChallengesInventory audit procedures are designed to weed out inefficiencies, errors, fraud, and other issues. When performing an inventory audit, some of the most common challenges faced by the auditor include:
Inventory Audit Best PracticesPerforming an inventory audit involves a two-prong approach touching on both physical inventory and accounting records. It may also include an assessment of the company’s Accounts Payable (AP) and procurement software solutions, as well as their purchasing/inventory workflows, to ensure proper internal controls are present. Periodic inventory system audits are performed at year-end, while perpetual inventory system audits can be performed at any time, barring unusually high risk exposure. Evaluating Existing Inventory SystemDepending on the type of systems and business processes the company has in place, reviewing the inventory record keeping system can reveal any chokepoints, weak links, or inherent inefficiencies that could compromise inventory accuracy. For optimal performance, these systems will integrate artificial intelligence and automation to streamline workflows and strengthen accuracy and compliance. A well-functioning and efficient inventory system will operate like so:
If your inventory management system can’t meet these standards, you might need to make some upgrades and adjustments to strengthen your compliance and protect against needless risk. Performing an Inventory AuditAfter reviewing how inventory is managed, observing and evaluating an actual physical inventory count and related accounting procedures completes the inventory audit. A simple audit checklist ensures a complete, accurate, and transparent audit.
Is Your Company’s Inventory Audit-Ready?No matter how big or small your business, managing the ins and outs of inventory can be challenging. But by reviewing your inventory processes, implementing helpful tech tools, and making smart use of internal and external inventory auditing, you can keep your workflows moving smoothly, ensure your financial records are accurate, and your bottom line is healthy and growing. What steps would you have followed for an inventory audit?What are Inventory Audit Procedures?. Observe Cycle Counts. ... . Reconcile the Inventory Count to the General Ledger. ... . Test High-Value Items. ... . Test Error-Prone Items. ... . Test Inventory in Transit. ... . Test Item Costs. ... . Review Freight Costs. ... . Test for Lower of Cost or Market.. How does an auditor verify inventories?Auditing inventory is the process of cross-checking financial records with physical inventory and records. It can be completed by auditors and other parties. An inventory audit can be as simple as just taking a physical count of stock and inventory to verify a match to the accounting records.
What is the purpose of inventory audit?The purpose of an inventory audit is to ensure accuracy between actual stock quantity and your financial records. Regular inventory audits increase understanding of your stock flow, help you calculate profits and losses accurately, and keep your business running smoothly.
What are the major audit procedures for inventory and warehousing?9 common inventory audit procedures. Cutoff analysis. ... . Physical inventory count. ... . Analytical procedures. ... . ABC analysis. ... . Freight cost analysis. ... . Finished goods cost analysis. ... . Overhead analysis. ... . Reconciling items.. |