Introduction to Auditing Inventory and Warehousing Cycle | CPA Exam скачать в хорошем качестве

Introduction to Auditing Inventory and Warehousing Cycle | CPA Exam

This session provides an introduction to the inventory and warehousing cycle in the context of auditing. Professor Farhat explains the unique aspects of auditing inventory, the six major functions within this cycle (processing purchase orders, receiving materials, storing inventory, processing goods, storing finished goods, and shipping), and the related accounting entries and documentation ✔️Accounting students or CPA Exam candidates, check my website for additional resources: https://farhatlectures.com/ (0:00). Here's a quick breakdown: Challenges in Auditing Inventory (0:11): The video highlights the complexities due to varied locations, diversity of items, and different valuation methods. Key Components of the Inventory Cycle (2:06): The video outlines the major functions: processing purchase orders, receiving raw materials, storing raw materials, processing goods, storing finished goods, and shipping goods. Accounting Basics (3:57): It reviews basic accounting entries for manufacturing, including raw materials, work in process, and finished goods. Perpetual Inventory Master File (5:22): The video explains the importance of this file for tracking inventory. Steps in the Inventory Cycle (6:16): The video describes each step, from purchase orders to shipping goods, including necessary documents like purchase requisitions, purchase orders, and receiving reports This video is relevant for accounting students and CPA exam candidates studying auditing and attestation. Learn the fundamentals of auditing the inventory and warehousing cycle. This video covers the complexities of inventory auditing, the flow of inventory in a manufacturing environment, key accounting entries, the perpetual inventory master file, and the six core functions of the cycle, from purchase to shipment. A detailed overview of the inventory and warehousing cycle from an auditing perspective. This video discusses why inventory is a complex account to audit, the various stages of the cycle, the documents involved, and the importance of the perpetual inventory master file. Ideal for CPA exam preparation in auditing. Introduction to Auditing the Inventory and Warehousing Cycle The inventory and warehousing cycle is a critical component of the audit process, especially for companies involved in manufacturing, retail, or wholesale operations. This cycle involves the movement of inventory from acquisition to storage and eventual sale or use in production. Given that inventory often represents a significant portion of a company’s assets, auditors must pay close attention to its accuracy, existence, and valuation. Purpose of Auditing the Inventory Cycle The primary objective of auditing the inventory and warehousing cycle is to ensure that: Inventory recorded in the financial statements exists. Inventory is accurately valued in accordance with applicable accounting standards (e.g., GAAP or IFRS). Inventory transactions are properly authorized and recorded. Inventory is properly classified and disclosed. Auditing this cycle helps prevent material misstatements that could impact a company’s financial health and operational integrity. Understanding the Inventory and Warehousing Cycle The cycle typically includes the following phases: Receiving Inventory: Goods received are inspected and documented. Storing Inventory: Inventory is tracked and maintained within warehouses. Inventory Movement: Goods are transferred between locations or used in production. Shipping Inventory: Goods sold are picked, packed, and shipped to customers. Periodic/Perpetual Inventory Records: The company may use either system to track inventory levels. Physical Inventory Count: Conducted periodically to verify quantities on hand. Key Controls in the Cycle Strong internal controls reduce the risk of errors and fraud: Segregation of duties between receiving, storing, and shipping functions. Use of pre-numbered documents (receiving reports, shipping orders). Access controls over inventory storage areas. Regular cycle counts and reconciliation with accounting records. Review of inventory turnover and obsolescence. Audit Procedures for Inventory Auditors perform a combination of tests of controls and substantive procedures, such as: Observing the physical inventory count. Testing inventory valuation methods (FIFO, LIFO, Weighted Average). Reconciling physical counts with accounting records. Reviewing for slow-moving, obsolete, or damaged inventory. Examining cutoff procedures for purchases and sales near period-end. Risks Associated with Inventory Inventory is prone to the following audit risks: Overstatement due to fictitious or double-counted items. Understatement due to omission or theft. Valuation issues from misapplied cost flow assumptions or obsolete items. Cutoff errors from transactions recorded in the wrong period. #cpaexam #auditingstandards #auditing