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Describe the precautions an auditor must take when performing any inventory count. [8 marks]

Describe the precautions an auditor must take when performing any inventory count. [8 marks]

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Answer #1

The precautions an auditor has to take is observe their client taking the physical inventory is to make sure the inventory reflected on the balance sheet actually exists and that the balance sheet includes all inventory owned by the company. This includes all raw materials, supplies, inventory in transit when using Free on Board (FOB) shipping point, inventory the company may have on consignment with another business, and inventory stored off the premises. Confirming the existence of inventory through your observations addresses the occurrence and completeness assertions as well.

Various inventory audit procedures used can be as follows:

Cutoff analysis, Physical Inventory Count, Finished Goods Cost Analysis, Overhead analysis etc.

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