Professional Documents
Culture Documents
Importance of Inventory
Major component of current assets on the balance sheet. Errors effect both the balance sheets and net income. Valuation is usually very subjective.
Potential obsolescence Goods have not been sold, so marketability may be uncertain.
9-3
9-4
Typical Activities
Planning
Production plan
Production
Bill of materials Requisitions
Cost Accounting
Standard costs Overhead allocation
9-5
9-6
Separation of Duties
Performance Reviews
Scrap reports Variance analysis
9-7
Management Reports
Sales Forecasts Inventory reports
Items on hand
9-8
Test of Controls
Observe separation of duties Vouch costs to labor and material reports Time tickets Receiving reports Transfer tickers Check proper authorizations Examine review of cost reports
Substantive Procedures
Observation of inventory count Tests of pricing and compilation Analytical procedures Excessive inventory Slow moving inventory
9-9
9-10
9-12
Livestock
Purchase Cutoffs
Verify CUT-OFFs for purchases and sales Examine Receiving Reports and Vendor Sales Invoices occurring around year-end. Examine bills of lading and sales invoices Agree to inclusion/exclusion from inventory
9-14
Analytic Procedures
Verify REASONABLENESS of COGS
Gross Profit Margin Compare to prior year, industry averages
9-15
9-16