Question

In narrative form describe the process of and the auditors role in the observation of inventory

Answer 1

The auditors role is very important in the observation of inventory and the procedures they use to observe the inventory they hold is correct or not. Most of the companies manipulate inventory as this is the source for bank collateral or working capital loan which they take. Some of the analytical procedures they use are:

1)Compare the gross margin numbers for present and previous years

2)compare the inventory turnover ratio for present and previous years

The auditor checks If company following the inventory procedures they have in work using or not. The quality and the condition of the inventory and how the warehouse is and all