Inventories are part of the company's assets with a value large enough and the material vulnerable to theft or misuse. Therefore, usually inventories become one of the main concerns in the auditor's examination of corporate financial statements.
As for the main purpose is to inventory checks to determine that:
- Inventory is physically really exist
- Separation procedure of inventory cut-off limit has been carried out satisfactorily
- Inventories have been valued in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied
- Slow-moving inventory (slow moving), worn, damaged, can identification proper and reserved a sufficient number of
- Mathematical calculations in the inventory list has been created by carefully
- Inventory as collateral has been identified and clearly disclosed in the notes to financial statements
Although the audit objectives mentioned above are directed primarily to the existence and valuation of inventory on the balance sheet, but the auditor should always remember that the audit of inventories that must be related to the cost of goods sold and other related accounts in the income statement.
Some stages of the audit procedures that auditors should be done in a stock are:
- Understanding client business - enough understanding of the business enterprise is the basic inventory audit. The questions raised by the auditor through a questionnaire Understanding Clients Business and Nature of Business will give the auditor an understanding of the unique aspects of business and type of business, such as seasonal and cyclical factors, the nature, method of sales finance and policies, competitive conditions, standard of materials and their sources, labor and manufacturing facilities related to the company's operating policies and the nature of information systems including the cost method. This understanding enables the auditor to reach conclusions about aspects of the financial statements with respect to inventory.
- Assessment of Internal Control - the purpose of internal control over inventory is to ensure that (a) there are sufficient controls for mutations of inventory, (b) all inventory transactions have been recorded and classified correctly, (c) the physical count of inventory has been conducted in accordance with the set procedures, (d) cost of inventories has been determined precisely, (e) adjustments to the slow-moving inventory (slow moving), obsolete and damaged has been done correctly
- Substantive Tests - The main purpose of substantive tests of inventory is to provide tangible evidence of the existence and valuation of inventory. Testing includes observation and testing of physical counts (inventory), a summary of test and test prices.
- There are several methods of physical inventory counts, among others:
- Thorough physical count done once a year on the balance sheet date or at a certain date, which was attended by the auditors.
- Calculations carried out continuously in the entire inventory at least once a year
- Recount of all sections with the largest count at least once a year for other parts
Public Accountants Professional Standards (SPAP) section 331 of the "preparation" that Govern the physical inventory count conducted by the auditors.
In paragraph 3 provides that if the quantity of dosage is determined only by physical count, and all the counting is done on the balance sheet date or at some date in the appropriate period, both before and after the balance sheet date, it is necessary for auditors to be present at the counting of physical inventory and, through observation, testing and demand for adequate information, to convince himself about the effectiveness of physical inventory counting methods and measure the reliability that can be placed on the representation of clients on the quantity and physical conditions of preparation.
There are some important things to consider auditor in the physical count of inventory, including:
- During the physical count of inventory, the auditor should ensure that control over income and expenditure procedures or internal movement of goods during the counting takes place has been properly followed, to assess the accuracy of the separation boundary (cut-off) that has been done. If possible, the production process should be suspended during the physical count of inventory or physical count conducted during the absence of revenue and expenditure activities of goods in the warehouse.
- Auditor should consider the possibility of shipping goods (deposits) which do not belong to the company, guarantees and other.
- The possibility of inventory that are not in control of the company, such as items that are on-site public warehouse, the goods held by sellers, consignment and other goods. For this type of inventory, audit procedures should be done is by doing a direct confirmation in writing or by physical count.
- Auditor should ensure that the supply in the course really has not been received until the physical count of inventory lasts.
If the physical count of inventory made after the balance sheet date, the auditor should perform pull back (retract) the results of the physical inventory on the balance sheet date. This procedure is especially necessary to obtain reasonable assurance that the recording of inventory balance on the balance sheet date in accordance with the physical inventory in the warehouse.
Resources: http://rachmatjusuf.megabyet.net/berita-118-sekilas-audit-persediaan.html
^Tank_You^
