Inventories - Patingo Eirene Joy V 11049782 AUDIT PROGRAM...

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Patingo, Eirene Joy V. 11049782 AUDIT PROGRAM FOR INVENTORIES 1 Audit Objectives To determine that: a. Inventories included in the statement of financial position physically exist b. Inventories represent items held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be used in the production process or in the rendering of services c. Inventory quantities include products, materials and supplies owned by the company (on hand, in transit, or stored at outside locations) d. The entity has legal title or similar rights of ownership to the inventories e. Inventories are properly stated at the lower of cost and net realizable value f. Inventories are properly described and classified in the financial statements and disclosures are adequate Audit Procedures 1) Observe physical inventory counts o Test shipping and receiving cutoff procedures o Account for all inventory tags and count sheets used in recording the physical inventory counts o Test the clerical accuracy of inventory listings o Trace test counts recorded during the physical inventory observation to the inventory listings o Reconcile physical counts to perpetual records and general ledger balances and investigate significant variations o Test inventory transactions between a preliminary physical inventory date and the end of the reporting period 2) Obtain confirmation of inventories at locations outside the entity 3) Review perpetual inventory records, production records, and purchasing records for indications of current activities 1 Roque, G. (2014). CPA Examination Reviewer: Auditing Problems. Conanan Educational Supply: Manila
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4) Analytically review the relationship of inventory balances to recent purchasing, production, and sales activities, and to anticipated sales volume 5) Examine paid vendors’ invoices, consignment agreements, and contracts 6) Review direct labor rates 7) Test the computation of standard overhead rates 8) Examine analysis of purchasing and manufacturing standard cost variances 9) Examine inventory turnover analysis 10) Review industry experience and trends 11) Tour the plant. Inquire of production and sales personnel concerning possible excess or obsolete inventory items 12) Inquire production & sales personnel concerning possible excess or obsolete inventory items 13) Examine sales after year-end and open purchase order commitments 14) Obtain confirmation of inventories pledged under loan agreements 15) Review drafts of the financial statements 16)
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