1. The existence and presentation/disclosure assertions are usually the most relevant for inventory.
2. The most common concerns for inventory are that purchases are understated or ending inventory is overstated, both of which will result in lower cost of goods sold and higher net income.
3. The audit of inventory is complex because inventory is easily transportable, exists at multiple locations, may become obsolete, and may be difficult to value.
4. Two important complexities in auditing inventory arise because inventory accounts experience a high volume of activity and are valued according to various inventory valuation methods.
5. One of the common ways that managers have committed fraud in the acquisition and payment cycle involves inappropriately classifying assets (for example, inventory) as expenses.
6. The following are possible manipulations that may occur when fraud is perpetrated during the purchase of inventory: under recording purchases, recording purchases in a later period, and not recording purchases.
7. A well-conceived inventory control system should assure that all purchases are authorized and that inventory transactions are recorded accurately, completely, and in a timely manner.
8. Common rationales for having a separate purchasing function in an organization include the ability of purchasing agents to exert favoritism to valuable suppliers, the reduction in the opportunity of fraud by combining the authorization to purchase with custody and recording, and the decentralization of control to enhance the application of knowledge of purchasing and inventory management.

  • CreatedSeptember 22, 2014
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