Question

Explain relevant assertions for the inventory business process.

Answer 1

You need to test below five management assertions during the audit:

1. Occurance: You need to make sure that inventory transactions actually took place or not, for it you can take samples of some transactions.

2. Completeness: You need to check whether all transactions are recorded in the books or not. To check it you can sample and then trace the inventory receiving reports in inventory records.

3. Authorization: In it you can find out that company is following proper internal control when handling inventory transactions.You can do it by checking the inventory requisitions and bills of lading.

4. Accuracy: In it you have to check whether transactions are free from errors or not. In it you can faces main two issues i.e. Mathematical figures are correct or not and these figures are taken correctly to income statement and balance sheet.

5. Cutoff: In this step you can make sure that all transactions have reported in the proper financial period or not. you can do so by testing receiving and shipping documents.