Substantive Procedures
Inventory cycle
Assertion Inventory(Account balance)
Existence Perform an inventory count.
Select a sample of records from the
ledger and then trace to the
ground/actual products.
Rights Enquire of management as to whether
any inventory is held on consignment
for other parties.
Obtain a listing of inventory of goods in
transit at the financial year-end and
inspect relevant orders/contracts to
determine whether ownership has
passed to the client by scrutiny of the
terms of purchase e.g. FOB, CIF.
Establish whether inventory is in any
way encumbered (e.g. offered as
security) by
discussion with management
inspection of bank confirmations
review of directors’ minutes
Review of correspondence/contracts
with suppliers and credit providers.
When performing the pricing
procedures for the valuation assertion
inspect invoices to ensure that they are
made out to the client.
Valuation and allocation arithmetic accuracy
Compare the quantities of inventory
items on the auditor’s copies of the
inventory sheets to the client’s priced
inventory sheets (to confirm that the
client has not altered the quantities).
Test the arithmetical accuracy of the
inventory sheets by reperforming all
extensions (quantity x cost) and casting
the extension column (total inventory
value).
Review inventory sheets for any
negative “inventory item values”
(should not be any). Compare the total
inventory value per the inventory sheets
to the general ledger and trial balance.
pricing inventory purchased locally
Inventory cycle
Assertion Inventory(Account balance)
Existence Perform an inventory count.
Select a sample of records from the
ledger and then trace to the
ground/actual products.
Rights Enquire of management as to whether
any inventory is held on consignment
for other parties.
Obtain a listing of inventory of goods in
transit at the financial year-end and
inspect relevant orders/contracts to
determine whether ownership has
passed to the client by scrutiny of the
terms of purchase e.g. FOB, CIF.
Establish whether inventory is in any
way encumbered (e.g. offered as
security) by
discussion with management
inspection of bank confirmations
review of directors’ minutes
Review of correspondence/contracts
with suppliers and credit providers.
When performing the pricing
procedures for the valuation assertion
inspect invoices to ensure that they are
made out to the client.
Valuation and allocation arithmetic accuracy
Compare the quantities of inventory
items on the auditor’s copies of the
inventory sheets to the client’s priced
inventory sheets (to confirm that the
client has not altered the quantities).
Test the arithmetical accuracy of the
inventory sheets by reperforming all
extensions (quantity x cost) and casting
the extension column (total inventory
value).
Review inventory sheets for any
negative “inventory item values”
(should not be any). Compare the total
inventory value per the inventory sheets
to the general ledger and trial balance.
pricing inventory purchased locally
