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CHAPTER 13 - Coggle Diagram

- - - - Unless perpetual system
  - - - Control-based approach is feasible
        
        More convinient
        
        More efficient
    - - Inventory counts
        
        Substantive approach
        
        Year-end inventory counts
        
        Periodic counts
- - - - Sufficient appropriate audit evidence
        
        Existence & condition
        
        Unless impracticable
    - - Evaluate management's instructions & procedures for recording & controlling the results of physical inventory counts
        
        Observe the performance of the count procedures
        
        Inspect the inventory
        
        Perform test counts
        
        Perform audit procedures over the entity's final inventory records to determine whether they accurately reflect the count results
  - - - Substantive procedures
      - TOC
    - - Risk assessment
      - Planned approach
      - Specific procedures
- - - - Third-party inventory
      - Slow-moving inventory
      - Cut-off problems
- - - - To ensure that transactions have been included in the correct period
  - - - Purchases (expense)
      - Payables (liability)
      - Closing inventory
    - - Shouldn't be included in fs
  - - - Goods have left the warehouse
        
        Revenue
        
        Trade receivables
    - - Rev. made after YE
        
        Closing inventories
- - - - Cost should include appropriate proportion of overheads
  - - - Ensuring the method of determining cost & the allocation of overheads is appropriate
      - Confirming inventory is carried at lower of cost & NRV
- - - - Audit coverage of the count is appropriate
      - Client's count instructions have been reviewed
  - - - Direct confirmation from 3rd parties (quantities & conditions)
      - Inspection
        
        If 3rd parties integrity & objectivity are doubtful)
- - - - Best method
    - - Audit evidence on
        
        Varying reliability
        
        Depending on
        
        length of time bet. count and year end
        
        the greater the time, the lesser the value of evidence
        
        System of IC
        
        Quality of records of inventory movements bet. counts and YE
        
        Roll back test
        
        Roll forward test
  - - - Make use of computing power
    - - Over time actual inventory level diverges from what the computer says/ should be
        
        Due to
        
        Unrecorded transactions
        
        Theft
        
        Therefore
        
        Need for physical inventory count of selected inventory lines
        
        To know the extend of divergence
        
        All inventory lines should be subject to physical count
        
        At least once a year
    - - Focus more on TOC rather than substantive work
        
        However, some further substantive work eed to be done
        
        Completeness
        
        Existence