34. Prepare an audit program for inventory pricing and compilation. 1. Obtain client's inventory listing, foot...

Transcribed Image Text:

34. Prepare an audit program for inventory pricing and compilation. 1. Obtain client's inventory listing, foot and agree to general ledger. 2. Trace test counts from inventory observation to the final inventory compilation. 3. Select a sample of inventory items. Vouch unit prices to vendors' invoices or other cost records. Recalculate the multiplication of units times price. 4. Scan the inventory compilation for items added from sources other than the physical count and items that appear to be large round numbers or systematic fictitious additions. 5. Recalculate the extensions and footings of the final inventory compilation for clerical accuracy. Reconcile the total to the adjusted trial balance. 6. For selected inventory items and categories, determine the replacement cost and the applicability of lower-of-cost-or-market valuation. 7. Determine whether obsolete or damaged goods should be written down: 8. Inquire about obsolete, damaged, slow-moving, and overstocked inventory. 9. Scan the perpetual records for slow-moving items. 10. During the physical observation, be alert to notice damaged or scrap inventory. 11. Compare the listing of obsolete, slow-moving, damaged, or unsalable inventory from last year's audit to the current inventory compilation. 12. At year-end, obtain the numbers of the last shipping and receiving documents for the year. Compare these to the sales, inventory/cost of sales, and accounts payable entries for proper cut-off. 13. Read bank confirmations, debt agreements, and minutes of the board, and make inquiries about pledge or assignment of inventory to secure debt. 14. Inquire about inventory out on consignment and about inventory on hand which is consigned-in from vendors. 15. Confirm or inspect inventories held in public warehouses. 16. Recalculate the amount of intercompany profit to be eliminated in consolidation. 17. Obtain management representations concerning pledging of inventory as collateral, 17. intercompany sales, and other related party transactions. 34. Prepare an audit program for inventory pricing and compilation. 1. Obtain client's inventory listing, foot and agree to general ledger. 2. Trace test counts from inventory observation to the final inventory compilation. 3. Select a sample of inventory items. Vouch unit prices to vendors' invoices or other cost records. Recalculate the multiplication of units times price. 4. Scan the inventory compilation for items added from sources other than the physical count and items that appear to be large round numbers or systematic fictitious additions. 5. Recalculate the extensions and footings of the final inventory compilation for clerical accuracy. Reconcile the total to the adjusted trial balance. 6. For selected inventory items and categories, determine the replacement cost and the applicability of lower-of-cost-or-market valuation. 7. Determine whether obsolete or damaged goods should be written down: 8. Inquire about obsolete, damaged, slow-moving, and overstocked inventory. 9. Scan the perpetual records for slow-moving items. 10. During the physical observation, be alert to notice damaged or scrap inventory. 11. Compare the listing of obsolete, slow-moving, damaged, or unsalable inventory from last year's audit to the current inventory compilation. 12. At year-end, obtain the numbers of the last shipping and receiving documents for the year. Compare these to the sales, inventory/cost of sales, and accounts payable entries for proper cut-off. 13. Read bank confirmations, debt agreements, and minutes of the board, and make inquiries about pledge or assignment of inventory to secure debt. 14. Inquire about inventory out on consignment and about inventory on hand which is consigned-in from vendors. 15. Confirm or inspect inventories held in public warehouses. 16. Recalculate the amount of intercompany profit to be eliminated in consolidation. 17. Obtain management representations concerning pledging of inventory as collateral, 17. intercompany sales, and other related party transactions.