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Lecture Auditing and assurance services (Second international edition) - Chapter 13: Auditing the inventory management process

In this chapter, the learning objectives are: Be able to identify and describe the types of documents and records used in the inventory management process, understand the functions in the inventory management process,. | Auditing the Inventory Management Process Chapter Thirteen Overview of the Inventory Management Process Purchasing process Inventory management process Revenue process Purchase of raw materials Payment of manufacturing overhead Human resource management process Assignment of direct and indirect labour costs Sale of goods Types of Documents and Records Production Schedule – Based on the expected demand for the entity’s products. Receiving Report – Records the receipt of goods from vendors. Materials Requisition – Used to track materials during the production process. Inventory Master File – Contains all the important information related to the entity’s inventory, including the perpetual inventory records. Production Schedule Inventory Master File Production Data Information – Contains information about the transfer of goods and related cost accumulation at each stage of production. Cost Accumulation and Variance Report – Material, labour, and overhead costs are charged to inventory as part of the manufacturing process. The variance report compares actual costs to standard or budgeted costs. Inventory Status Report – Shows the type and amount of products on hand. Shipping Order – Used to remove goods from the perpetual inventory records. Type of Documents and Records (continued) Shipping Order The Major Functions Key Segregation of Duties Key Segregation of Duties Segregation of duties is a particularly important control in the inventory management process because of the potential for theft and fraud. Inherent Risk Assessment The auditor should consider industry-related factors and operating and engagement characteristics when assessing the possibility of a material misstatement. If industry competition is intense, there may be problems with the proper valuation of inventory. Technology changes in certain industries may also promote material misstatement due to obsolescence. Products that are small and of high value are more susceptible to theft. The auditor . | Auditing the Inventory Management Process Chapter Thirteen Overview of the Inventory Management Process Purchasing process Inventory management process Revenue process Purchase of raw materials Payment of manufacturing overhead Human resource management process Assignment of direct and indirect labour costs Sale of goods Types of Documents and Records Production Schedule – Based on the expected demand for the entity’s products. Receiving Report – Records the receipt of goods from vendors. Materials Requisition – Used to track materials during the production process. Inventory Master File – Contains all the important information related to the entity’s inventory, including the perpetual inventory records. Production Schedule Inventory Master File Production Data Information – Contains information about the transfer of goods and related cost accumulation at each stage of production. Cost Accumulation and Variance Report – Material, labour, and overhead costs are charged to .