2D - 1Audit of the Inventoryand Warehousing CycleChapter 2D2D - 2OVERVIEW OF THE INVENTORY MANAGEMENT PROCESSFigure 13-1 shos ho o!her "ro#esses i$!er%#! i!h !he i$&e$!or' (%$%ge(e$! "ro#ess)Figure 13-2 "rese$!s % *+o#h%r! *or % re%so$%,+' #o("+e- i$&e$!or' (%$%ge(e$! "ro#ess)2D - 3DOC.MENTS AND RECORDSPro/u#!io$ s#he/u+e)Re#ei&i$g re"or!)M%!eri%+ re0uisi!io$)I$&e$!or' (%s!er *i+e)Pro/u#!io$ /%!% i$*or(%!io$)Cos! %##u(u+%!io$ %$/ &%ri%$#e re"or!)I$&e$!or' s!%!us re"or!)Shi""i$g or/er)2D - 1 R% M%!eri%+sWor2 i$ Pro#essM%$u*%#!uri$gO&erhe%/F+o o* I$&e$!or' %$/ Cos!sA#!u%+ A""+ie/M%$u*%#!uri$gDire#! 3%,orA#!u%+ A""+ie/4egi$$i$gi$&e$!or'R%(%!eri%+suse/Pur#h%sesE$/i$gi$&e$!or'2D - 5Wor2 i$ Pro#ess Fi$ishe/ Goo/sF+o o* I$&e$!or' %$/ Cos!s4egi$$i$gi$&e$!or'E$/i$gi$&e$!or'Cos! o* Goo/s So+/Cos! o* goo/s(%$u*%#!ure/4egi$$i$gi$&e$!or'E$/i$gi$&e$!or'Cos! o*goo/s so+/2D - 6Fu$#!io$s i$ !he I$&e$!or' %$/ W%rehousi$g C'#+ePro#ess"ur#h%seor/ersPro#ess"ur#h%seor/ersRe#ei&e r%(%!eri%+sRe#ei&e r%(%!eri%+sS!orer%(%!eri%+sS!orer%(%!eri%+sPro#ess !he (%!eri%+sPro#ess !he (%!eri%+s2D - 7Fu$#!io$s i$ !he I$&e$!or' %$/ W%rehousi$g C'#+ePer"e!u%+ i$&e$!or'(%s!er *i+ePer"e!u%+ i$&e$!or'(%s!er *i+eS!ore*i$ishe/goo/sS!ore*i$ishe/goo/sShi"*i$ishe/goo/sShi"*i$ishe/goo/s2D - 8Au/i! o* I$&e$!or'A#0uire %$/ re#or/r% (%!eri%+s9 +%,or9%$/ o&erhe%/)I$!er$%++' !r%$s*er%sse!s %$/ #os!s)Part of audit Cycle in which testedA#0uisi!io$ %$/"%'(e$! "+us"%'ro++ %$/ "erso$$e+I$&e$!or' %$/%rehousi$g2D - :Au/i! o* I$&e$!or'Shi" goo/s %$/ re#or/re&e$ue %$/ #os!s)Ph'si#%++' o,ser&ei$&e$!or')Pri#e %$/ #o("i+ei$&e$!or')Cycle in which tested Part of auditS%+es %$/#o++e#!io$I$&e$!or' %$/%rehousi$gI$&e$!or' %$/%rehousi$g2D - 1;SEGREGATION OF D.TIESThe i$&e$!or' (%$%ge(e$! *u$#!io$ shou+/ ,e segreg%!e/ *ro( !he #os! %##ou$!i$g *u$#!io$)The i$&e$!or' s!ores *u$#!io$ shou+/ ,e segreg%!e/ *ro( !he #os!-%##ou$!i$g *u$#!io$)The #os!-%##ou$!i$g *u$#!io$ shou+/ ,e segreg%!e/ *ro( !he ge$er%+ +e/ger *u$#!io$)The res"o$si,i+i!' o* su"er&isi$g "h'si#%+ i$&e$!or' !%2i$g shou+/ ,e se"%r%!e/ *ro( !he i$&e$!or' (%$%ge(e$! %$/ i$&e$!or' s!ores *u$#!io$s)2D - 11INHERENT RIS< ASSESSMENTI$/us!r'-re+%!e/ *%#!orsCo("e!i!io$I$&e$!or' &%+u%!io$ issuesR%"i/ !e#h$o+og' #h%$gesE$g%ge(e$! %$/ O"er%!i$g Ch%r%#!eris!i#sT'"es o* "ro/u#!V%+u%!io$ #%$ +e%/ !o /is%gree(e$!s i!h #+ie$!Possi,+e re+%!e/-"%r!ies !r%$s%#!io$s2D - 12CONTRO3 RIS< ASSESSMENTPlanning and performing tests of controlson inventory transactionsUnderstanding and documenting the inventory management process basedon the planned level of control riskAssessing and documenting thecontrol risk for the inventory management process2D - 13A.DITING INVENTORYSu,s!%$!i&e !es!s o* !r%$s%#!io$sA$%+'!i#%+ "ro#e/uresTes!s o* %##ou$! ,%+%$#es2D - 11S.4STANTIVE TESTS OF TRANSACTIONS4e#%use !he i$&e$!or' (%$%ge(e$! "ro#ess i$!er%#!s i!h !he re&e$ue9 "ur#h%si$g9 %$/ "%'ro++ "ro#esses9 #o$!ro+ "ro#e/ures o&er !he re#ei"! o* r% (%!eri%+s9 shi"(e$! o* goo/s9 %$/ %ssig$(e$! o* +%,or #os!s %re $or(%++' !es!e/ %s "%r! o* !hose "ro#esses)I* !he %u/i!or i$!e$/s !o o,!%i$ su,s!%$!i&e e&i/e$#e o$ !he "er"e!u%+ i$&e$!or' re#or/s9 !he !es!s o* re#ei"! %$/ shi"(e$! o* goo/s #%$ ,e e-!e$/e/ ,' !r%#i$g !he !r%$s%#!io$s i$!o !he "er"e!u%+ i$&e$!or' re#or/s)2D - 15ANA3YTICA3 PROCED.RESCo("%re r% (%!eri%+9 *i$ishe/ goo/s9 %$/ !o!%+ i$&e$!or' !ur$o&er !o "re&ious 'e%rs= %$/ i$/us!r' %&er%ges)Co("%re /%'s ou!s!%$/i$g i$ i$&e$!or' !o "re&ious 'e%rs= %$/ i$/us!r' %&er%ges)Co("%re gross "ro*i! "er#e$!%ge ,' "ro/u#! +i$e i!h "re&ious 'e%rs %$/ i$/us!r' /%!%)Co("%re %#!u%+ #os! o* goo/s so+/ !o ,u/ge!e/ %(ou$!s)2D - 16ANA3YTICA3 PROCED.RE >#o$!i$ue/?Co("%re #urre$! 'e%r s!%$/%r/ #os!s i!h "rior 'e%rs= %*!er #o$si/eri$g #urre$! #o$/i!io$s)Co("%re %#!u%+ (%$u*%#!uri$g o&erhe%/ #os!s i!h ,u/ge!e/ or s!%$/%r/ (%$u*%#!uri$g o&erhe%/ #os!s)2D - 17A$%+'!i#%+ Pro#e/ures *or M%$u*%#!uri$g E0ui"(e$!A$%+'!i#%+ Pro#e/ure Possi,+e Miss!%!e(e$!Co("%re u$i! #os!s o* O&ers!%!e(e$! ori$&e$!or' i!h !hose o* u$/ers!%!e(e$! o*"re&ious 'e%rs) u$i! #os!sCo("%re e-!e$/e/ Miss!%!e(e$!s i$i$&e$!or' &%+ue i!h !h%! #o("i+%!io$9 u$i!o* "re&ious 'e%rs) #os!s9 or e-!e$sio$s2D - 18A$%+'!i#%+ Pro#e/ures *or M%$u*%#!uri$g E0ui"(e$!A$%+'!i#%+ Pro#e/ure Possi,+e Miss!%!e(e$!Co("%re #urre$! 'e%r Miss!%!e(e$! o* u$i!(%$u*%#!uri$g #os!s i!h #os!s o* i$&e$!or'9!hose o* "re&ious 'e%rs es"e#i%++' /ire#!>&%ri%,+e #os!s shou+/ ,e +%,or %$/%/@us!e/ *or #h%$ges i$ (%$u*%#!uri$g&o+u(e?) o&erhe%/2D - 1:Cos! A##ou$!i$g Co$!ro+s2) Co$!ro+s o&er !he re+%!e/ #os!s1) Ph'si#%+ Co$!ro+sR% (%!eri%+s WIP Fi$ishe/ goo/s2D - 2;Tes!s o* Cos! A##ou$!i$gPh'si#%+ Co$!ro+sDo#u(e$!s %$/ re#or/s *or!r%$s*erri$g i$&e$!or'Per"e!u%+ i$&e$!or' (%s!er *i+es.$i! #os! re#or/s2D - 21O4SERVATION OF PHYSICA3 INVENTORYThe %u/i!orAs o,ser&%!io$ o* i$&e$!or' is % ge$er%++' %##e"!e/ %u/i!i$g "ro#e/ure)The o,ser&%!io$ o* !he "h'si#%+ i$&e$!or' "ro&i/es e&i/e$#e "ri(%ri+' o$ !he &%+i/i!' %u/i! o,@e#!i&e >%+so o$ershi" %$/ &%+u%!io$?)2D - 22O4SERVATION PROCED.RESI$sure !h%! $o "ro/u#!io$ is s#he/u+e/)E$sure !h%! !here is $o (o&e(e$! o* goo/s /uri$g !he i$&e$!or' #ou$!)M%2e sure !h%! !he #+ie$!As #ou$! !e%(s %re *o++oi$g !he i$&e$!or' #ou$! i$s!ru#!io$s)E$sure !h%! i$&e$!or' !%gs %re issue/ se0ue$!i%++' !o i$/i&i/u%+ /e"%r!(e$!s)Per*or( !es! #ou$!s %$/ re#or/ % s%("+e o* #ou$!s i$ !he or2i$g "%"ers)2D - 23O4SERVATION PROCED.RES>#o$!i$ue/?O,!%i$ !%g #o$!ro+ i$*or(%!io$ *or !es!i$g !he #+ie$!As i$&e$!or' #o("i+%!io$)O,!%i$ #u!o** i$*or(%!io$)O,ser&e !he #o$/i!io$ o* !he i$&e$!or' *or i!e(s !h%! (%' ,e o,so+e!e9 s+o (o&i$g9 or i$ e-#ess 0u%$!i!ies)I$0uir' %,ou! goo/s he+/ o$ #o$sig$(e$! *or o!hers or he+/ o$ % B,i++ %$/ ho+/B ,%sis)2D - 21Co$!ro+sPro"er i$s!ru#!io$s *or !he "h'si#%+ #ou$!Su"er&isio$ ,' res"o$si,+e "erso$$e+I$/e"e$/e$! i$!er&%+ &eri*i#%!io$ o* !he #ou$!sI$/e"e$/e$! re#o$#i+i%!io$s o* !he "h'si#%+#ou$!s i!h "er"e!u%+ i$&e$!or' (%s!er *i+esA/e0u%!e #o$!ro+ o&er #ou$! shee!s or !%gs2D - 25Au/i! o* Pri#i$g %$/ Co("i+%!io$I$&e$!or' #o("i+%!io$ !es!sI$&e$!or' "ri#e !es!s2D - 26V%+u%!io$o* i$&e$!or'Pri#i$g %$/#o("i+%!io$"ro#e/uresPri#i$g %$/#o("i+%!io$#o$!ro+sAu/i! o* Pri#i$g %$/ Co("i+%!io$2D - 27V%+u%!io$ >Pri#i$g?o* I$&e$!or'Pri#i$g Pur#h%se/ I$&e$!or'Pri#i$g M%$u*%#!ure/ I$&e$!or'Cos! or M%r2e!2D - 28TESTS OF ACCO.NT 4A3ANCESTable !"# summari$es the tests of the inventory account balance for each audit ob%ective&2D - 2:POSSI43E CA.SES OF 4OO