Physical Observation of Inventory | Auditing and Attestation скачать в хорошем качестве

Physical Observation of Inventory | Auditing and Attestation

In this video, we cover the physical observation of inventory during the audit. ✔️Check my website for additional resources: 👉https://farhatlectures.com 0:00 Introduction Physical Observation of Inventory (0:46): Auditors are required to physically observe inventory counts due to a past fraud case. Auditor's Role (2:58): Auditors must evaluate the client's counting process and test the reliability of inventory information. Steps for Auditors (3:18): Be present during the inventory count. Observe the counting process. Talk to management and employees. Perform independent test counts. Understanding the Client's Business (4:00): Auditors need to understand the client's industry, inventory valuation method, and potential obsolescence. Assessing Business Risk (6:22): Evaluate risks that could lead to material misstatements in inventory. Materiality and Inherent Risk (10:15): Auditors consider these factors, especially for expensive items. Auditing Standards (11:42): Auditors must be satisfied with the client's inventory counting method. Inventory in Public Warehouses (12:55): Auditors may need to confirm inventory with the warehouse or perform additional procedures. Planning and Executing Physical Inventory Observation (14:09): Clear instructions, supervision, independent verification, and reconciliation with perpetual inventory records are essential. Key Audit Decisions (15:24): Timing of the observation. Sample size. Selection of items. Because inventory varies significantly for different companies, obtaining an understanding of the client’s industry and business is more important for both physical inventory observation and inventory pricing and compilation than for most audit areas. Examples of key considerations that auditors should consider include the inventory valuation method selected by management, the potential for inventory obsolescence, and the risk that consignment inventory might be intermingled with owned inventory. Auditors should evaluate whether risks related to inventory qualify as significant risks. Auditors often first familiarize themselves with the client’s inventory by conducting a tour of the client’s inventory facilities, including receiving, storage, production, planning, and record-keeping areas. The tour should be led by a supervisor who can answer questions about production, especially about any changes in internal controls and other processes since last year. While gaining an understanding of the effect of the client’s business and industry on inventory, auditors assess client business risk to determine if those risks increase the likelihood of material misstatements in inventory. Auditors have been required to perform physical observation tests of inventory since a major fraud involving the recording of nonexisting inventory was uncovered in 1938 at the McKesson & Robbins Company. The fraud was not discovered because the auditors did not physically observe the inventory, which at the time was not required. Auditing standards require auditors to satisfy themselves about the effectiveness of the client’s methods of counting inventory and the reliance they can place on the client’s representations about the quantities and physical condition of the inventories. To meet the requirement, auditors must: B #auditing #auditingstandards #accountingeducation