Question

As an auditor of manufacturing company in KSA, explain what the auditor should do during the observation of the physical inventory count.

Answer 1

The management does the inventory count. The auditor only observes the physical inventory count. During the inventory count, the auditor has the following duties:

• To determine if all the usable inventories have been included in the physical count.
• To determine if the physical count is being carried out efficiently and correctly.
• Ensure that no obsolete or damaged inventory, has been included.
• To determine the accuracy of the cut-off at the later date, ensure to record the serial number of the final receiving and delivery documents issued before taking of inventory.
• To observe the delivery/ receipt of goods if any, during the counting process.
• To observe any reconciliation made.
• To observe if the inventory sheets are being controlled properly.
• To test count the selected sample from the inventory items, both from physical to count sheets and vice-versa.
• To ascertain the percentage or stage of completion indicated on inventory sheet for the work in process.
• To ascertain if the numerical control is maintained over both inventory tags and inventory sheets.
• To ascertain if any of the inventories on hand are goods held on consignment or customer-owned: materials sent in for reprocessing or repairs.
• To prepare working papers indicating the:
  • Extent of test counts
  • Deficiencies noted
  • Conclusion.