Generally Accepted Auditing Standards (GAAS) states that if inventory is material to the financial statements, the auditor should generally obtain evidence regarding the existence and condition of inventory by attending the entity’s physical inventory count. The types of inventory an entity might have varies from industry to industry as does the risk of fraud or error related to inventory counts. This module will discuss the procedures and risks involved in observing an entity’s physical inventory. (Please Note: This module is part of Surgent's Audit Skills Training: Level 1.)
Learning Objectives
- Identify audit risks related to physical inventory observations
- Understand the key controls related to inventory observations
- Perform common inventory observation audit procedures
- Know when to utilize sampling techniques related to inventory observations
- Perform remote inventory observations
Major Topics
- Inventory observation procedures
- When attendance at the inventory observation is impractical
- Inventory under the control of a third party
- Consideration of the risk of fraud in inventory counts
- Sampling related to inventory observations
- Considerations related to retail inventories, multiple locations
- Considerations for inventory observations
