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1、Audit of the Inventoryand Warehousing Cycle,Chapter 20,Raw Materials,Work in Process,Manufacturing Overhead,Flow of Inventory and Costs,ActualApplied,Manufacturing Direct Labor,ActualApplied,Beginning inventory,Raw materials used,Purchases,Ending inventory,Work in Process,Finished Goods,Flow of Inve
2、ntory and Costs,Beginning inventory Ending inventory,Cost of Goods Sold,Cost of goods manufactured,Beginning inventory Ending inventory,Cost of goods sold,Functions in the Inventory and Warehousing Cycle,Process purchase orders,Receive raw materials,Store raw materials,Process the materials,Function
3、s in the Inventory and Warehousing Cycle,Perpetual inventory master file,Store finished goods,Ship finished goods,How E-Commerce Affects Inventory Management,The Internet enables clients to provide expanded descriptions of their inventory on a real-time basis.,The use of the Internet and other e-com
4、merce applications may lead to financial reporting risks if access to inventory databases and systems is not adequately controlled.,Audit of Inventory,Acquire and record raw materials, labor, and overhead.,Internally transfer assets and costs.,Part of audit,Cycle in which tested,Acquisition and paym
5、ent plus payroll and personnel,Inventory and warehousing,Audit of Inventory,Ship goods and record revenue and costs.,Physically observe inventory.,Price and compile inventory.,Cycle in which tested,Part of audit,Sales and collection,Inventory and warehousing,Inventory and warehousing,Cost Accounting
6、 Controls,2. Controls over the related costs,1. Physical Controls,Raw materials,WIP,Finished goods,over,Methodology for Designing Controls and Substantive Tests,Understand internal control cost accounting system.,Assess planned control risk cost accounting system.,Evaluate cost-benefit of testing co
7、ntrols.,Methodology for Designing Controls and Substantive Tests,Design tests of controls and substantive tests of transactions for the cost accounting system to meet transaction-related audit objectives.,Audit procedures,Sample size,Items to select,Timing,Tests of Cost Accounting,Physical Controls,
8、Documents and records for transferring inventory,Perpetual inventory master files,Unit cost records,Analytical Procedures for Manufacturing Equipment,Analytical ProcedurePossible Misstatement,Compare gross marginOverstatement or percentage with that ofunderstatement of previous years.inventory and c
9、ost of goods sold,Compare inventory turnoverObsolete inventory (cost of goods sold dividedOverstatement or by average inventory) withunderstatement of that of previous years.inventory,Analytical Procedures for Manufacturing Equipment,Analytical ProcedurePossible Misstatement,Compare unit costs ofOve
10、rstatement or inventory with those ofunderstatement of previous years.unit costs,Compare extendedMisstatements in inventory value with thatcompilation, unit of previous years.costs, or extensions,Analytical Procedures for Manufacturing Equipment,Analytical ProcedurePossible Misstatement,Compare curr
11、ent yearMisstatement of unit manufacturing costs withcosts of inventory, those of previous yearsespecially direct (variable costs should belabor and adjusted for changes inmanufacturing volume).overhead,Methodology for Designing Tests ofBalances Other Accounts,Identify client business risks affectin
12、g the inventory and warehousing cycles.,Set tolerable misstatement and assess inherent risk for the inventory and warehousing cycles.,Assess control risk for several cycles.,Methodology for Designing Tests ofBalances Other Accounts,Design and perform tests of controls and substantive tests of transa
13、ctions for the several cycles.,Design and perform analytical procedures for the inventory and warehousing cycle.,Methodology for Designing Tests ofBalances Other Accounts,Design tests of details of inventory to satisfy balance-related audit objectives.,Audit procedures,Sample size,Items to select,Ti
14、ming,Controls,Proper instructions for the physical count,Supervision by responsible personnel,Independent interval verification of the counts,Independent reconciliations of the physical counts with perpetual inventory master files,Adequate control over count sheets or tags,Selection of items,Sample
15、size,Timing,Audit Decisions,Physical Observation Tests,The most important part of the observation of inventory is determining whether the physical count is being taken in accordance with the clients instructions.,Balance-Related Objectives: Physical Inventory Observation,Existence,Completeness,Accur
16、acy,Inventory as recorded on tags exist.,Existing inventory is counted and tagged.,Inventory is counted accurately.,Classification,Cutoff,Realizable Value,Inventory is classified correctly on the tags.,Transactions are recorded in the proper period.,Obsolete and unusable inventory items are excluded or noted.,Balance-Related Objectives: Physical Inventory Observation,Balance-Related Objectives: Physical Inventory Observation,Rights,The client has rights to inventory recorded on tags,Realizable V
