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Attendance at Inventory Taking: Duties of Auditor.
Attendance at Inventory Taking: Duties of Auditor.
Attendance at Inventory is a critical aspect of auditing the inventory of an organization. In this article, we shall talk about how an auditor should perform this action in the course of his audit.
The treatment of Attendance at Inventory taking has been described by SA 501 on “Audit Evidence - Specific Considerations for Selected Items”. We will break it down for quicker understanding.
What actions does attendance at physical inventory involve?
To be blunt, attendance at physical inventory involves the following actions:
- Inspecting the inventory to ascertain its existence and evaluate its condition, and performing test counts;
- Observing compliance with management’s instructions and the performance of procedures for recording and controlling the results of the physical inventory count; and
- Obtaining audit evidence as to the reliability of management’s count procedures.
These procedures, as mentioned above, serve as a test of controls for the auditor or as substantive procedures depending upon his judgement. He makes his judgement after analysing the risk assessment, planning the approach and carrying out specific procedures.
In addition, the auditor may obtain copies of cut off information, such as details of the movement of inventory, to assist him in performing various audit procedures over the accounting for such movements at a later date.
Inspecting inventory when attending physical inventory counting assists the auditor in ascertaining the existence of the inventory (though not necessarily its ownership), and in identifying, for example, obsolete, damaged or ageing inventory.
Performing test counts, for example by tracing items selected from management’s count records to physical inventory and tracing items selected from the physical inventory to management’s count records, provides audit evidence about the completeness and the accuracy of those records.
In addition to recording the auditor’s test counts, obtaining copies of management’s completed physical inventory count records assists the auditor in performing subsequent audit procedures to determine whether the entity’s final inventory records accurately reflect actual inventory count results.
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