Audit of the Inventory and Warehousing Cycle

Transcript:Audit of the Inventory and Warehousing Cycle:
Audit of the Inventory and Warehousing Cycle Chapter 20 Learning Objective 1 Describe the business functions and the related documents and records in the inventory and warehousing cycle. Raw Materials Work in Process Manufacturing Overhead Flow of Inventory and Costs Actual Applied Manufacturing Direct Labor Actual Applied Beginning inventory Raw materials used Purchases Ending inventory Work in Process Finished Goods Flow of Inventory and Costs Beginning inventory Ending inventory Cost of Goods Sold Cost of goods manufactured Beginning inventory Ending inventory Cost of goods sold Functions in the Inventory and Warehousing Cycle Process purchase orders Receive raw materials Store raw materials Process the materials Functions in the Inventory and Warehousing Cycle Perpetual inventory master file Store finished goods Ship finished goods Learning Objective 2 Describe how e-commerce affects inventory management. How E-Commerce Affects Inventory Management The Internet enables clients to provide expanded descriptions of their inventory on a real-time basis. The use of the Internet and other e-commerce applications may lead to financial reporting risks if access to inventory databases and systems is not adequately controlled. Learning Objective 3 Explain the five parts of the audit of the inventory and warehouse cycle. Audit of Inventory Acquire and record raw materials, labor, and overhead. Internally transfer assets and costs. Part of audit Cycle in which tested Acquisition and payment plus payroll and personnel Inventory and warehousing Audit of Inventory Ship goods and record revenue and costs. Physically observe inventory. Price and compile inventory. Cycle in which tested Part of audit Sales and collection Inventory and warehousing Inventory and warehousing Learning Objective 4 Design and perform audit tests of cost accounting. Cost Accounting Controls 2. Controls over the related costs 1. Physical Controls Raw materials WIP Finished goods over Methodology for Designing Controls and Substantive Tests Understand internal control – cost accounting system. Assess planned control risk – cost accounting system. Evaluate cost-benefit of testing controls. Methodology for Designing Controls and Substantive Tests Design tests of controls and substantive tests of transactions for the cost accounting system to meet transaction-related audit objectives. Audit procedures Sample size Items to select Timing Tests of Cost Accounting Physical Controls Documents and records for transferring inventory Perpetual inventory master files Unit cost records Learning Objective 5 Apply analytical procedures to the accounts in the inventory and warehousing cycle. Analytical Procedures for Cost Accounting System Analytical Procedure Possible Misstatement Compare gross margin Overstatement or percentage with that