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Syllabus D. Audit Evidence D4. The audit of specific items

D4b. Inventory - Possible Count Weaknesses

Syllabus D4b)

Explain the audit objectives and the audit procedures in relation to: Inventory:
i) inventory counting procedures in relation to year-end and continuous inventory systems
ii) cut-off testing
iii) auditor’s attendance at inventory counting 
iv) direct confirmation of inventory held by third parties, 
v) valuation
vi) other evidence in relation to inventory.

The auditor should look for the following:

  1. No pre-numbering of count sheets
    This ensures none are counted twice or lost

  2. No "expected" stock amounts on the count sheets

  3. No filling in count sheets in pencil

  4. Counters are store staff

  5. Inventory not tagged after being counted

  6. Count sheets not signed by counter

  7. Lack of written instructions for the counter