Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: list of goods taxed at 4% :: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: ACCOUNTING STANDARDS :: TAX RATES - GOODS TAXABLE @ 4% :: Central Excise rule to resale the machines to a new company :: VAT RATES :: articles on VAT and GST in India :: form 3cd :: ARTICLES ON INPUT TAX CREDIT IN VAT :: due date for vat payment :: VAT Audit :: empanelment :: TDS
ę Auditing »
 Supreme Court puts the spotlight on audit firms
 Auditing to be less of a burden as accountants embrace AI
 CAG's report on GST will be totally paperless
 Time Limit For Completion Of Assessment From The Date Of Special Auditorís Report Under Income Tax Act, 1961
 Provisioning pertaining to Fraud Accounts
 Tax Audit Report (TAR) Certain exceptions and increased limits according to number of partners and considering nature of activity are desirable
 Cost Auditing Standards [ Cost Audit Documentation (102)] Ė Part-II
 Conference on Companies Act gets under way
 New bureau to dissolve state-run banks' power to choose auditors
 Foreign Exchange Management (Permissible Capital Account Transactions) (Fourth Amendment) Regulations, 2015
 ICAI forms 'prima facie' view on NSEL auditor

Auditors responsibility for inventory
May, 11th 2009

The auditor must examine the inward and outward movement of stocks from the cut-off date till the date of physical count to establish the validity of the data as on the year-end date.

Stocks constitute an important segment of current assets, thereby imposing a responsibility on the auditor to ensure that they are properly disclosed in the financial statements.

The auditor is required to be present at the time of counting of inventories to ensure that they exist and to assess their condition.

Inventory means any stock held by an entity for resale or use in the course of manufacture of goods.

Management vs auditor

Physical verification of inventories is the responsibility of the management of the entity. It is up to the management to establish procedures for counting of inventories at least once in a year to serve as a basis for preparation of financial statements.

The auditor has to carry out audit procedures to obtain sufficient and appropriate audit evidence during his attendance at the time of counting of physical inventory.

The auditor should be physically present to count and inspect the inventory and to assess whether the procedures laid down by the management to record and control the results of the counting are being complied with and to decide the reliability of such procedures.

If the auditor is unable to attend the counting of the inventory, he should be present on an alternative date and decide upon alternative measures to assess whether the changes in the inventories between the year end and the date of physical count are correctly recorded.

He should consider whether alternative procedures provide sufficient and appropriate audit evidence regarding the existence and condition of the inventory.

The auditor must examine the inward and outward movement of stocks from the cut-off date till the date of physical count to establish the validity of the data as on the year-end date.

Counting preparations

The auditor should consider the following aspects while planning attendance at the physical counting:

Nature of the inventory and the auditors knowledge of the inventory.

Whether the assistance of an expert is needed at the time of physical count.

Existence and effectiveness of the accounting and internal control systems regarding inventory.

Materiality of the inventories and the audit risks attached (inherent, control as well as detection risks) to inventory.

Various locations where the inventory is held and the timing of the counting at each location.

In case of multiple locations, the auditor might require staggering of counting at various locations. In such a situation, he should ensure that there is no movement of inventories from one location to another.

Auditors responsibility

The auditor should review the instructions of the management and the internal controls regarding the stock sheets, tagging, counting and re-counting of stocks; identification of slow moving, obsolete, damaged or rejected items of inventory; valuation of work-in-progress; cut-off procedures; and movement of inventories between the cut-off date and the date of physical counting.

The auditor should consider the cut-off procedures and ensure that the inclusion and exclusion of stocks as on the year-end date is appropriate and is justified.

Different situations

In case of perpetual inventory system is in place: Where the auditor attends the periodical physical count or when a perpetual inventory system is in operation, the auditor may observe the count and perform test count of inventory. The auditor should carry out audit procedures to assess whether any material differences between the physical count and the inventory records are understood and necessary adjustments are made.

Where the inventory is estimated: In case the inventory is based on an estimate, such as coal, ore, etc., the auditor should be satisfied about the estimate of the quantity and the reasonableness of the procedures.

To ensure adequate compliance with the procedures laid down by the management, the auditor should observe the physical verification procedures performed by the employees of the entity and carry out certain test counts. During this process, the auditor should carry out a two-way check from inventory sheets to the count records and vice versa.

In case tagging is used, the auditor should seek a tagging reconciliation before finalising the count. The auditor should decide whether copies of such count records are to be retained for subsequent use.

Where the control risk is assessed as less than high, physical count may be conducted at a date other than the year-end date. By carrying out appropriate audit procedures, the auditor would assess whether the changes between the count date and the period end are correctly recorded.

Third partys inventory

Where inventory is held by a third party, the auditor should seek direct confirmation from them on the quantities and condition of the inventory held on behalf of the entity. In such a situation, depending upon the materiality of such inventory, the auditor should consider the following aspects:

Relationship with the entity and the independence of the third party.

Observe, directly or through another auditor, the physical inventory count.

Ensuring adequacy of the third partys accounting and internal control procedures for correctness of the counting.

Inspecting documentation such as delivery notes, warehouse receipts, take delivery letters, etc.

The auditor should seek management representation about completeness of information regarding inventory and assurance regarding compliance with the procedures laid down for physical inventory count.

Audit procedures should be carried out on the final inventory statements to ensure that it reflects actual inventory counts.

Conclusions, reporting

Where the auditor is unable to obtain sufficient and appropriate evidence regarding the existence and condition of the inventory or delinquent procedures for physical counting, the auditor should make a reference to a scope limitation in his audit report.

In case the inventory is not appropriately disclosed in the financial statements, the auditor should issue a qualified opinion.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Web Application Development Web based Software Solution Web Application Deployment Web Application Solutions Web Application Software Development Web Application Deployment Web Application Programming Web Application Design and Development

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions