inventories and cost of goods sold
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Chapter 12. Inventories and Cost of Goods Sold. The valuation of goods on hand and in process often presents complex and difficult issues Determining the quantities of inventories may require specialized techniques Inventories often represent the largest current asset of a company - PowerPoint PPT PresentationTRANSCRIPT
Inventories and Cost of Goods
Sold
Chapter 12
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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Special Significance of Audit of Inventories
The valuation of goods on hand and in process often presents complex and difficult issues
Determining the quantities of inventories may require specialized techniques
Inventories often represent the largest current asset of a company
Misstatements of inventories directly affect cost of goods sold and, therefore, net income
Management fraud has often involved the fraudulent overstatement of inventories
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Controls Over the Conversion Cycle
Segregation of duties over purchases and custody of inventory Use of pre-numbered requisitions, purchase orders, and
receiving reports Procedures for authorizing purchase transactions and verifying
them for payment General ledger control of inventories and reconciliation to
production records Cost accounting controls Analysis of variances from standard costs Use of perpetual records for inventories Use of appropriate procedures for taking inventory Appropriate physical controls over inventories
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Objectives for the Audit of Inventories and Cost of Goods Sold
Determine the existence of inventories Establish the completeness of inventories Establish that the client has rights to the recorded
inventories Determine that the valuation of inventories and cost
of goods sold is in accordance with GAAP Determine that the presentation and disclosure of
inventories and cost of goods sold are appropriate
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Substantive Tests for the Inventories and Cost of Goods Sold
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Considerations in Planning a Physical Inventory
Selecting of the appropriate date Suspending production Segregating obsolete and defective goods Establishing control over the counting
process Achieving proper cutoff of sales and
purchases Arranging for the services of specialists
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