Question

When testing inventory, would it be better to do an announced audit, or an announced audit? What would be the benefit of each in the case of an inventory audit?

Answer 1

It is better to do an Unannounced Inventory audit.

Benefits of announced Audit

The Inventory details are available properly in case of Announced audit. Audit procedure becomes easy because Client has enough time to arrange inventory to facilitate proper counting. Sometimes Clients do the Inventory checking themselves before auditor do his job. Client is aware of justifications to be given in case of variances are found such as:

Excess quantity--- Reason being delivery not taken by customer.

Short Quantity--- stock not yet received or damaged or stolen, etc.

Benefit of Unannounced audit

If Auditor does a surprise audit or Unannounced Audit of Inventory, client will not get time to change inventory according to his convenience. The inventory count may not be correct in announced audit as Client may have altered inventory ledgers or Physical position.

Unannounced audit helps in checking frauds. The true position is reflected such as record keeping, Stock handling, etc.