ch 12 outline - Outlines Chapter 12 -1 Chapter 12 Inventory...

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Outlines Chapter 12 - 1 Chapter 12 Inventory 1. Background a. Types of inventory Manufacturer raw materials, work in process, finished goods supplies (really raw materials, but the smaller things). Non-Manufacturer—Finished goods; small amounts of supplies b. Valuation rule—lower of cost or market Cost—e.g., LIFO, FIFO, etc. Market—Basically, what you can sell it for; remember calculating upper and lower bounds in a prior accounting course. c. Although companies now try to minimize costs associated with inventories by holding smaller amounts (e.g., just-in-time inventory systems), inventories still are for many companies large, and susceptible to errors and fraud. d. General rule—client counts at end of year, auditor observes the counting. If good internal control it may be counted earlier. 2. Overall audit approach and observation of inventory a. A way to overstate profits is to overstate inventory; accordingly, auditors typically emphasize tests aimed at finding overstatements. b.
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ch 12 outline - Outlines Chapter 12 -1 Chapter 12 Inventory...

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