Inventory AA_Chapter_24

Inventory AA_Chapter_24 - CH.24: Audit of the Inventories...

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© Peter T. Y. Lau and Nelson C. Y. Lam © Pilot Publishing Co. Ltd. 2009 Auditing and Assurance in Hong Kong 1 CH.24: Audit of the Inventories and Production Cycle 1. Inventories 2. Key Documents 3. Key Internal Controls 4. Physical Inventory Count 5. Before Attendance 6. During Attendance 7. After Inventory Count 8. Inventory Held by Third Parties 9. Perpetual Inventory System 10. Attendance Not at Year-end 11. Attendance Not Practicable 12. Valuation of Inventory 13. Work in Progress 14. Overall Tests
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© Peter T. Y. Lau and Nelson C. Y. Lam © Pilot Publishing Co. Ltd. 2009 Auditing and Assurance in Hong Kong 2 1. Inventories Inventories are often significant to an entity Inventory quantity and value are not derived from the double entry system: Quantity ascertained at year-end by counting Different types of inventories in several locations Assessment of inventory condition is a matter of opinion Valuation methods are many and various Different methods may lead to different values The purchase and payment aspects of inventories are dealt with in Chapter 23 Chapter 24 discusses the audit of inventories
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© Peter T. Y. Lau and Nelson C. Y. Lam © Pilot Publishing Co. Ltd. 2009 Auditing and Assurance in Hong Kong 3 Inventory record Inventory count sheet Inventory count tag Final inventory listing 2. Key Documents
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© Peter T. Y. Lau and Nelson C. Y. Lam © Pilot Publishing Co. Ltd. 2009 Auditing and Assurance in Hong Kong 4 3. Key Internal Controls Segregation of duties on inventory records, custody of inventories, and authorization of inventories Maintain inventory records by independent staff, periodical comparison and investigation of discrepancies Proper control in custody of inventories and controls in warehouse, including Proper physical security Different inventories stored with different arrangement Periodical physical inventory count Proper authorization on inventory movements and write-off
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5 4. Physical Inventory Count Physical inventory count is an important aspect of internal control While quantities of inventories is not part of the double entry system, the inventory records without physical inventory count cannot be relied completely.
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© Peter T. Y. Lau and Nelson C. Y. Lam © Pilot Publishing Co. Ltd. 2009 Auditing and Assurance in Hong Kong 6 4. Physical Inventory Count Good set of physical inventory count procedures consists of: Proper organization and planning; Proper person responsible for overall control; Sufficient and competent staff; Distribute physical inventory count instructions (in writing) to all staff and locations involved; Proper physical arrangement of inventories for counting; and Establish methods of determining and checking quantities.
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© Peter T. Y. Lau and Nelson C. Y. Lam © Pilot Publishing Co. Ltd. 2009 Auditing and Assurance in Hong Kong 7 4. Physical Inventory Count Good set of physical inventory count procedures consists of: Identification of high value items for counting;
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This note was uploaded on 12/21/2010 for the course ACCT 410 taught by Professor Sallyli during the Fall '10 term at Hong Kong Shue Yan.

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Inventory AA_Chapter_24 - CH.24: Audit of the Inventories...

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