The following audit procedures were performed in the audit of inventory to satisfy specific balance-related audit objectives as discussed in Chapter 6. The audit procedures assume that the auditor has obtained the inventory count sheets that list the client's inventory. The general balance-related audit objectives from Chapter 6 are also included.
Audit Procedures
1. Select a sample of inventory items in the factory warehouse and trace each item to the inventory count sheets to determine if it has been included and if the quantity and description are correct.
2. Trace selected quantities from the inventory list to the physical inventory to make sure that it exists and the quantities are the same.
3. Compare the quantities on hand and unit prices on this year's inventory count sheets with those in the preceding year as a test for large differences.
4. Test the extension of unit prices times quantity on the inventory list for a sample of inventory items, test foot the list, and compare the total to the general ledger.
5. Send letters directly to third parties who hold the client's inventory, and request that they respond directly to the auditors.
6. Examine sales invoices and contracts with customers to determine whether any goods are out on consignment with customers. Similarly, examine vendors' invoices and contracts with vendors to determine whether any goods on the inventory listing are owned by vendors.
7. Question operating personnel about the possibility of obsolete or slow-moving inventory.
General Balance-Related Audit Objectives
Existence
Cutoff
Completeness
Detail tie-in
Accuracy
Realizable value
Classification
Rights and obligations
Required
a. Identify the type of audit evidence used for each audit procedure.
b. Identify the general balance-related audit objective or objectives satisfied by each audit procedure.