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Inventory

Inventory Listing Section Module Obtain a listing of inventory transactions during the period, including the following fields where possible (you may need to join data from various sources to get all the fields you need, e.g. a sales summary with the inventory listing) Inventory code - the item code for the inventory line (mandatory) Period end balance - the value of inventory line at the period end (mandatory) Prior period end balance - the value of inventory line at the comparative period end Opening quantity - the inventory quantity at the beginning of the period Closing quantity - the inventory quantity at the end of the period (mandatory) Last received date - the date the inventory line was last received Last sale date - the date the inventory line was last sold Unit cost - the unit value at the period end Sales price - the sales price at the period end Units sold - the number of units sold in the period Cost of goods sold - the total cost of goods sold in the period Total revenue - the total sales revenue during the period Inventory location - the warehouse location of the inventory Sum the period end balance column and ensure this reconciles to the inventory control account balance(s) per the Trial Balance (this total is included on the Inventory Section Module Summary Sheet. Using the aging test, age the report by last receipt date using Months for the aging bands and the period end date as the aging reference date. Understand whether there are inventory items that are excessively old and therefore unlikely to be sold at greater than purchase price, thus requiring an NRV provision Understand if significant aged inventory indicates the company is not adequately managing their inventory profile, indicating inadequate controls Using the 'recalculate inventory balance' determine the closing balance based on the unit cost and quantity on hand If the calculated closing balance does not agree to the closing balance per the trial balance, understand why this is and whether it indicates fraud or error Using the 'calculate inventory turnover' test, extract records with a turnover below an appropriate level considering the busness's expectation by quantity Understand whether these are unlikely to be sold at greater than purchase price, thus requiring an NRV provision Understand if these indicate the company is not adequately managing their inventory profile, indicating inadequate controls Using the 'zero/negative unit cost' test, extract records with a zero or negative unit cost. Understand why there are inventory items that have a zero or negative unit cost and whether they represent fraud or error Ensure that any negative unit cost items are not deducted from inventory, and instead presented in payables or elsewhere as appropriate Using the 'zero/negative quantity' test, extract records with a zero or negative unit quantity.

Understand why there are inventory items that have a zero or negative quantity and whether they represent fraud or error Ensure that any negative quantity items are not deducted from inventory, and instead presented in payables or elsewhere, or written back as appropriate Using the 'large inventory amounts' test, extract significant records by value Understand whether the values are appropriate for the type of product and its unit cost Using the inventory received around a specific date test, extract all inventory lines received in the day(s) before and day(s) after the period end. Select an appropriate sample from these using the 'random sample' or 'systematic sample' and agree the goods receipt or despatch date to a delivery or despatch note to ensure the year-end inventory cut-off is correct (this can be combined with purchases and sales cut-off testing) Using the 'inventory location summary' test produce a summary of the period-end inventory by location Understand if any locations have an unusually large value of inventory, and the reasons for this

Physically verify the inventory in locations with an unusually large value Using the 'last sales price lower than cost' test extract records where the inventory cost is higher than the most recent sales price Understand whether these inventory items should be provided against, as their NRV appears to be lower than their cost Understand whether there are any similar inventory items that may also need to be provided against. Using the 'total revenue lower than cost' extract records where the inventory cost of goods sold is higher than the revenue received Understand whether these inventory items should be provided against, as their NRV appears to be lower than their cost Understand whether there are any similar inventory items that may also need to be provided against. Using the column statistics test, produce a summary of the inventory listing. Review the report and ensure that the source data appears reasonable (i.e. no text entries in numeric columns, blanks in date columns, etc) Other Inventory Tests Using the 'join 2 sheets' tool, join the period-end inventory listing with a report showing sales since the periodend using the inventory code field Compare the sales price to the unit price for each inventory line (that has been sold since year end), to ensure it is being recorded at the lower of cost and NRV Review inventory lines with little or no movement since year end and consider the risk of obsolecense Using the 'MUS' tool, generate a sample of lines from the inventory listing at the time of the inventorytake Physically verify the inventory in these locations Update the sample values with the counted values and evaluate the most likely difference

Using the Benford test tool, analyse the inventory value and quantity fields Review the results for any evidence of manual manipulation Using the specific comments tool, search for any unusual names, such as employee names, suspense, miscellaneous' etc. Understand whether these are legitimate and do not represent fraud or error

Using the 'join 2 sheets' tool, join the period end inventory listing with the inventory listing at the end of the prior year and calculate the absolute and percentage differences in unit quantity on a line by line basis Understand those inventory lines where there is a significant difference in inventory levels between the current and prior years Using the above joined sheet, compare the unit price between the current and prior year Understand those inventory lines where there is a significant difference in the unit between the current and prior years Obtain a listing of recent inventory purchases, which includes purchase price and part number, and join this to the period end inventory listing by part number Extract any records where the unit price in inventory does not agree to the most recent purchase price using the Exception Reporting Tool. You may need to adjust the purchase price for overhead absorbtion if appropriate If inventory is automatically reordered and automatic order quantities are set, compare the re-order level to the units sold (you may need to use the 'join 2 sheets' tool to join 2 reports together for this) Understand the reasoning for any lines where the re-order quantity is large compared to annual unit sales. For any inventory lines marked as obsolete, ensure the re-order level is set to 0, or that the re-order process for these lines has been blocked through another process

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