Exercising control over physical goods
The tests that the auditor conducts on the raw materials, goods in the process of manufacturing and manufactured goods should be limited to the observation and examination of these items. The presence of a suitable warehouse and a specific person responsible for it can indicate that the said product is kept in a suitable place. If the auditor comes to the conclusion that the exercise of physical control over the inventory is inappropriate and cannot be counted on the maintenance system and a specific person is not responsible, then he is forced to make further observations on them to ensure the existence and accurate counting of the items. to turn
Documents related to the transfer of inventories
When dealing with financial events related to the transfer of inventory from one place to another, the auditor must ensure that the financial events are recorded and that all items, descriptions of items, and the date of their recording are correctly recorded in the books.
First, one should understand the nature of the internal control system (related to the registration of inventory transfers) and then perform the relevant tests. After understanding the nature of the internal control system, the auditor can easily perform the tests by examining the documents and books. Information technology has made it easier to track transfers related to manufactured goods. For example, products that have standard barcodes are controlled by electronic eyes and thus their transfer can be tracked.
The main file of permanent inventory:
The main file of permanent inventory can depend on the time and scope of physical checks and inventory of goods. When there are accurate original files, the inventory test can be performed before the balance sheet date. Counting the inventory of goods in the middle of the period can save costs. Also, the main file of permanent inventory helps the auditor to determine the control risk at a lower level during the evaluation and thereby reduce the scope of the tests.
If the purpose of the auditor is to reduce the tests related to the inventory or time change, he can test the inventory using the original documents and files. When the auditor is
review and proof of purchases can review and prove the purchase of raw materials as part of the tests of the purchase and payment cycle
Records related to the cost of each unit:
One of the main parts of the costing system is to be able to accurately obtain data on the cost of raw materials, direct labor and manufacturing overhead. Accounting records are important for the auditor because in determining the value of the balance at the end of the period, it depends on the precise plan and the method of using these records.
The auditor must first understand the nature of the internal control system of the owner’s company in the examination of the inventory of goods based on the recording of expenses. Of course, this is often expensive. After the auditor understands the nature of the company’s internal control system, the review and verification of internal control requires the same methods and principles as discussed in the review and verification of financial events related to sales and purchases. One of the major problems in reviewing and proving the inventory of goods in the costing system is verifying the allocated cost amounts. For example, assigning the manufacturing overhead cost to each product unit requires considering personal assumptions that can have a major effect on the cost of each unit of inventory, and hence the question of the fairness of the inventory value determination method is raised. .
Mehdi Koh Soltani (financial services, accounting, financial and tax consultant):
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This post is written by Mahdi_kohsoltani