ACC614DiscussionsWeek 5 - Discussion 1- Inventory Count Observation: Planning and Substantive Procedures

Week 5 - Discussion 1

Sammy Smith is the partner in charge of the audit of Blue Distributing Corporation, a wholesaler that owns one warehouse containing 80 percent of its inventory. Smith is reviewing the audit documentation prepared to support the firm’s opinion on Blue’s financial statements and wants to ensure that essential audit procedures are well documented. Referencing this week’s lecture, respond to the following:

• What evidence should Smith expect to find indicating that the observation of the client’s physical inventory count was well planned and that assistants were adequately supervised?

The inventory clerk is permitted to fulfill a requisition order for the release of stock upon presentation of a material transfer ticket signed by either the store manager or the distribution manager. The clerk can then use these records to make necessary changes to the inventory records. It is crucial to have standardized record keeping for inventory picking procedures, where the person picking inventories signs off on the records—proven cycle counts of authorized stock and evidence of a regular review of out-of-date inventory to purge it. Furthermore, a scrap transaction record is monitored and checked frequently (Accounting Tools, 2016).

• What substantive procedures should Smith find in the audit documentation of management’s balance assertions about the existence and completeness of inventory quantities at the end of the year? Refer to Appendix 9B for the audit plan’s procedures.

The transactions are complete if an auditor can begin with a transaction and trace it back to its origin, and the entries in the accounts are backed up by sufficient evidence. If the voucher register and cash disbursements journal are added together, the total in the general ledger should be correct (Putra, 2011). Any business conducted within three days before or after the year-end was recorded using the client cut-off procedures in the appropriate year.

References

Accounting Tools. (2016). Inventory Internal Controls. Retrieved from http://www.accountingtools.com/inventory-internal-controlsLinks to an external site.

Putra, L. D. (2011, August ). How To Conduct Inventory Audit (Guidelines). Retrieved from http://accounting-financial-tax.com/2011/08/how-to-conduct-inventory-audit-guidelines/Links to an external site.