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Physical Inventory

In: Business and Management

Submitted By mukulu
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MR1) In observing the client’s annual physical inventory, the auditor’s primary objectives include; * To see to it that all inventory movements (physically or logically) are authorized. * That inventory included in the statement of financial position physically exists. * Ensure that the inventory records only include items that belong to the entity. * And that the inventory quantities have been accurately determined. * Check to see that all purchases and sales of inventory have been recorded in the accounting system. * That disclosures relating to classification and valuation are sufficient. * Inventory is properly stated at the lower of cost and net realizable value. * All purchases and sales of inventory are recorded in the correct accounting period. * That inventory transaction and balance are properly identified and classified in the financial statement
Key audit procedure that an auditor would typically perform during and after the client’s physical inventory;
The two major steps in the observation of a physical inventory are as follows : * Planning the physical inventory * Taking the physical inventory
Planning the physical inventory before conducting the physical count is essential. The auditor should review or prepare the client instructions and should work closely with the client in the planning stage. The inventory should be taken at a time when operations are suspended or minimal.
The client has primary responsibility for planning and conducting the physical inventory. Because of the auditor's important role in the taking of the inventory, however, he or she should participate in the planning stage.
Before taking the inventory, the client should submit a plan containing the following : * Date and time inventory is to be taken * Locations of inventory * Method of…...

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