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Unformatted text preview: AP3 Substantive Audit ProgramInventory Balances
Assertions Begin with the list of assertions below and add others you think appropriate. Then write your audit program to test those assertions. 1. 2. 3. 4. 5. 6. 7. 8. Inventory physically exists. Inventory is owned by the company. Inventory cost properly includes freight, discounts, taxes, etc. Obsolete and unsalable goods have been written off or written down. The inventory value does not exceed the applicable measure of market value. Inventory out on consignment is properly recorded. Inventory is a current asset. Inventory pledged as collateral is disclosed. Program Steps: 1. Existence or occurrence All recorded inventory exists at the balance sheet date. 2. Completeness All existing inventory has been counted and included in the inventory summary. 3. Valuation or allocation Inventory quantities on the client's perpetual records agree with items physically on hand. Prices used to value inventories are materially correct. Extensions of price times quantity are correct and details are correctly added. Inventory items are properly classified as to raw materials, work in process, and finished goods. Purchase cutoff at yearend is proper. Sales cutoff at yearend is proper. Total of inventory items agrees with general ledger. Inventories have been written down where net realizable value is impaired. 4. Rights and obligations The company has title to all inventory items listed. Inventories are not pledged as collateral. 5. Presentation and disclosure Major categories of inventories and their bases of valuation are disclosed. The pledge or assignment of any inventories is disclosed. ...
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- Spring '10