Experienced Auditors: What to do for Inventory

  • Creator
    Topic
  • #830448
    NumberCruncher4lyfe
    Participant

    Hi all, I am new to a senior role at my firm and i just got my first engagement assignment that i will be in charge of. Inventory is a material balance on the balance sheet, but the partner mentioned they forgot to do an observation this year. So my task is to come up with solutions on how to address the issue. Per the standards, if the balance is material an observation must be done. If not, analytical procedures are sufficient. Help please?

Viewing 5 replies - 1 through 5 (of 5 total)
  • Author
    Replies
  • #830455
    Anonymous
    Inactive

    Coming at this from the client side, would an observation at a later date and audit of transactions which affect inventory between the current date and the balance sheet date be useful? Seems like our auditors have done that sometimes…but inventory isn't material for us. So not sure if it'd apply for you, but thought I'd throw it out as an idea, since from the client side, it's how I “audit” inventory on an on-going basis.

    Granted you were asking for experienced auditors, which I'm not…but since I can't sleep and I'm prowling A71 instead, I figured I'd throw out an idea. 🙂

    #830686
    ADHDCPA
    Participant

    Yes, you can perform a roll back from a post balance sheet date. Observe at later date and have client roll forward from balance sheet date to observation date by reconciling sales and purchases.

    AUD - 91 YAAY! (8/4/15)
    FAR - 51 BOOO! (8/4/15)
    REG - TBD
    BEC - TBD

    #830743
    Anonymous
    Inactive

    Yes, you will have to obtain or prepare some rollforward reconciliation that shows the inventory change from the balance sheet date to the inventory observation date. You'll also want to employ analytical procedures, substantive price testing of select items and gain a thorough understanding of how management prices the inventory/allocates overhead/ etc. Also, if any inventory was held by third parties you might want to do confirmations.

    #831226
    charlesrskinner
    Participant

    Here is some information in addition to what the previous posters shared. Its good to have options.

    #831229
    charlesrskinner
    Participant
Viewing 5 replies - 1 through 5 (of 5 total)
  • The topic ‘Experienced Auditors: What to do for Inventory’ is closed to new replies.