What are the substantive procedures for inventory?

What are the substantive procedures for inventory?

Substantive procedures Obtain a copy of the inventory listing and agree the total to the general ledger and the financial statements. During the inventory count select a sample of goods physically present in the warehouse and confirm recorded in the inventory records.

What are the common substantive audit tests of inventory?

What is Substantive Testing?

• Issue a bank confirmation to test ending cash balances.
• Contact customers to confirm that accounts receivable balances are correct.
• Observe the period-end physical inventory count.
• Confirm the validity of inventory valuation calculations.

How do you physically check inventory?

Here are some of the inventory audit procedures that they may follow:

1. Cutoff analysis.
2. Observe the physical inventory count.
3. Reconcile the inventory count to the general ledger.
4. Test high-value items.
5. Test error-prone items.
6. Test inventory in transit.
7. Test item costs.
8. Review freight costs.

How do you test if inventory exists?

How do you manage obsolete inventory?

Here are 10 ways that might help you reduce your excess inventory.

1. Return for a refund or credit.
2. Divert the inventory to new products.
3. Trade with industry partners.
4. Sell to customers.
5. Consign your product.
6. Liquidate excess inventory.
7. Auction it yourself.
8. Scrap it.

How do the auditors test for obsolete goods in the client’s inventory?

The auditors will determine whether the amounts you have recorded as allowances for obsolete inventory or scrap are adequate, based on your procedures for doing so, historical patterns, “where used” reports, and reports of inventory usage (as well as by physical observation during the physical count).

What are the substantive procedures?

What are Substantive Procedures? Substantive procedures are intended to create evidence that an auditor assembles to support the assertion that there are no material misstatements in regard to the completeness, validity, and accuracy of the financial records of an entity.

Which is the final source of obsolete inventory?

A final source of information is the preceding period’s obsolete inventory report. The accounting staff should keep track of these items and notify management of those for which there is no disposition activity.

What are the audit procedures for physical inventory?

Audit Procedures to Ensure the Existence The relevant audit procedure to ensure the existence assertion is to perform the observation of physical inventory count. Auditors shall need to follow the best practice of inventory count procedures. During the inventory counting process, there can be no movement of inventory into and out of the warehouse.

What are the accounting procedures for inventory layers?

Inventory layers. If you are using a FIFO or LIFO inventory valuation system, the auditors will test the inventory layers that you have recorded to verify that they are valid. If the company uses cycle counts instead of a physical count, the auditors can still use the procedures related to a physical count.

How often should a company do an obsolescence review?

By doing so, there is a strong likelihood that obsolescence reviews will become a regular part of a company’s activities. In particular, consider a Board-mandated policy to conduct at least quarterly obsolescence reviews, which gives management an opportunity to locate items before they become too old to be disposed of at a reasonable price.