Inventory audit.pptx - 1 3 AUDIT OF INVENTORIES Learning...

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AUDIT OF INVENTORIES 1 3
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All Rights Reserved FUNDAMENTALS OF AUDITING © Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 3 After studying this chapter, you should be able to: Explain the nature of inventories Identify the audit objectives applicable to inventories Explain the business functions and the fundamental control procedures, and related documents, records and accounts Design test of controls and substantive test for inventories Learning Outcomes
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All Rights Reserved FUNDAMENTALS OF AUDITING © Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 4 Introduction Inventories refer to current assets held by an enterprise which consists of goods of a merchandising entity acquired for resale. In a manufacturing entity, inventory can be in one of three stages: Raw materials; Work in process, and Finished goods.
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All Rights Reserved FUNDAMENTALS OF AUDITING © Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 5 Audit Objectives Audit objectives for inventories concern obtaining sufficient audit evidence for the transactions and balances. Key issues in auditing inventories are to ensure that the inventories actually exist, are owned and are properly valued.
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All Rights Reserved FUNDAMENTALS OF AUDITING © Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 6 Audit Objectives (cont.)
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All Rights Reserved FUNDAMENTALS OF AUDITING © Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 7 Nature of Inventories Entities that maintain comprehensive inventory records, may use the records as the basis for determining both the quantity and the value of the ending inventory. Auditors should perform the following: (a) Tests of controls over recording and maintaining inventory records; (b) Observations of evidence from the existing inventories, and (c) Verifications of both cost and net realizable value of inventories.
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All Rights Reserved FUNDAMENTALS OF AUDITING © Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 8 Accounting System and Control Activities The accounting system and control activities for audit of inventories relates to the audit of purchase. Two aspects of maintaining inventory transactions: (a) Records for physical inventories, and (b) Records for inventory costs. Implementing adequate control activities is crucial for inventory accounts to ensure the existence , proper valuation and proper ownership of inventories.
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All Rights Reserved FUNDAMENTALS OF AUDITING © Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 9 Accounting System and Control Activities (cont.)
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All Rights Reserved FUNDAMENTALS OF AUDITING © Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 10 Accounting System and Control Activities (cont.) Recording the Movement of Goods into Inventory
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