Contributed 9/22/99 by Sharyn Lawson slawson@mcclaincpa.com

AUDIT PROCEDURES FOR INVENTORY


1. Observe the physical count, making appropriate test count

-- Determine which items are to be test counted by selecting from the inventory file a sample of items that provide the desired dollar coverage.

2. Test the mathematical accuracy of the inventory extensions and footings.

-- For each item in the inventory file, multiply the quantity on hand by the cost per unit and add the extended amounts.

3. Compare the auditors' test counts to the inventory records.

-- Organize the auditors' test counts and compare them to inventory records.

4. Compare the client's physical count data to the inventory records.

-- Compare the quantity of each item counted to the quantity on hand in the inventory file or computer spreadsheet.

5. Perform a lower-of-cost-or-market test by obtaining a list of current costs per item from vendor.                  

* Compare the current cost per unit to the cost per unit in the inventory file.
* printout the extended value for each item, using the lower of two unit costs, and add extended amounts.

6. Test purchases and sales cutoff.
 
-- List a sample of items on the inventory file for which the date of last purchase or last sale is on, or immediately before, the date of the physical count.

7.  Confirm the existence of items located in public warehouses.

-- List items located in public warehouses and print confirmations.

8.  Analyze inventory for evidence of obsolescence or slow-moving items.

-- List items from the inventory file for which the turnover ratio (quantity sold divided by quantity on hand) is low or for which the date of last sale indicates a lack of recent transactions.

Source: AICPA, adapted from Uniform CPA Examination.