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Substantive test of auditing inventory 1. Analytical procedure Make comparison between current inventory balance with inventory balance of previous year => check the change/fluctuation of inventory => Possibly overstate/understate inventory balance. Compare the current inventory turnovers with the last year's ones Compare the profit margin of current year with last year. Make analysis of the change/fluctuation in purchase within the a year Compare purchase transactions of current year with last year - Suppose the company is a manufacturer, we have to compare the ratio of direct materials, direct labour and production overhead of current year with last year. 2. Test of details Witness of inventory + Make the plan for witness of inventory + Implement the witness of inventory: observation of witness, observe the status of inventory, + Do post-witness procedure Compare beginning balance of inventory Revaluate the value of COGS, ending inventory - Cut-off - Check the allowance for declining in inventory Presentation and disclosure: Costing method, reason of allowance for declining in inventory

Substantive test of auditing inventory 1. Analytical procedure Make comparison between current inventory balance with inventory balance of previous year => check the change/fluctuation of inventory => Possibly overstate/understate inventory balance. Compare the current inventory turnovers with the last year's ones Compare the profit margin of current year with last year. Make analysis of the change/fluctuation in purchase within the a year Compare purchase transactions of current year with last year - Suppose the company is a manufacturer, we have to compare the ratio of direct materials, direct labour and production overhead of current year with last year. 2. Test of details Witness of inventory + Make the plan for witness of inventory + Implement the witness of inventory: observation of witness, observe the status of inventory, + Do post-witness procedure Compare beginning balance of inventory Revaluate the value of COGS, ending inventory - Cut-off - Check the allowance for declining in inventory Presentation and disclosure: Costing method, reason of allowance for declining in inventory

Auditing: A Risk Based-Approach (MindTap Course List)
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle
Section: Chapter Questions
Problem 31CYBK
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Substantive test of auditing inventory 1. Analytical procedure Make comparison between current inventory balance with inventory balance of previous year => check the change/fluctuation of inventory => Possibly overstate/understate inventory balance. Compare the current inventory turnovers with the last year's ones Compare the profit margin of current year with last year. Make analysis of the change/fluctuation in purchase within the a year Compare purchase transactions of current year with last year Suppose the company is a manufacturer, we have to compare the ratio of direct materials, direct labour and production overhead of current year with last year. 2. Test of details Witness of inventory + Make the plan for witness of inventory + Implement the witness of inventory: observation of witness, observe the status of inventory, + Do post-witness procedure Compare beginning balance of inventory Revaluate the value of COGS, ending inventory Cut-off Check the allowance for declining in inventory Presentation and disclosure: Costing method, reason of allowance for declining in inventory
Transcribed Image Text:Substantive test of auditing inventory 1. Analytical procedure Make comparison between current inventory balance with inventory balance of previous year => check the change/fluctuation of inventory => Possibly overstate/understate inventory balance. Compare the current inventory turnovers with the last year's ones Compare the profit margin of current year with last year. Make analysis of the change/fluctuation in purchase within the a year Compare purchase transactions of current year with last year Suppose the company is a manufacturer, we have to compare the ratio of direct materials, direct labour and production overhead of current year with last year. 2. Test of details Witness of inventory + Make the plan for witness of inventory + Implement the witness of inventory: observation of witness, observe the status of inventory, + Do post-witness procedure Compare beginning balance of inventory Revaluate the value of COGS, ending inventory Cut-off Check the allowance for declining in inventory Presentation and disclosure: Costing method, reason of allowance for declining in inventory
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