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Production and inventory cycle - Coggle Diagram
Production and inventory cycle
Functions
Storage and dispatch
Accounting for all items upon receipt and throughout the production process until the sale
Inventory management
Regular review of inventory levels, conditions, and supplier performance
Production entry
Ensuring all production entries are supported with relevant documentation
Physical monitoring and controls
Implementing perpetual inventory systems, gross profit analysis, and monitoring inventory levels to match sales demands
Documents
Tracking production
Raw Material Issues Slip for recording raw material issuance
Customer/Inventory Job Card for recording production hours
Job Transfer/Inventory Movement Sheet for WIP stage progression
Inventory records
Daily Production Report for job progress
Completed Production Report for job completion costs
Transfer to Finished Goods Note for product finalisation
Production orders
Inventory Production Order for bulk production
Customer Production Order for specific customer specifications
Post production and sales
Inventory Count Sheet for physical counts
Inventory Adjustment Form for inventory discrepancies
Picking Slip and Delivery Notes for product selection and movement
Control objectives
Completeness
Every inventory movement is documented and accounted for
Existence
Regular verification of the physical existence of inventory against records
Accuracy
Ensuring all inventory transactions are recorded at the correct amounts
Internal controls
Issue of raw materials
Raw materials only leave the storeroom with proper authorisation
Recording and monitoring
Continuous and accurate recording of inventory, regular counts, and adjustments post-management authorisation
Safeguarding inventory
Use of locked storage areas, restricted access, and physical protections
Weaknesses and risks
Inadequate monitoring
Risks related to insufficient review of inventory levels and supplier performance
Physical safeguarding failures
Theft or damage due to poor physical control measures
Documentation gaps
Risks arising from incomplete or missing production or inventory records
Inventory management oversights
Issues arising from not regularly updating or inaccurately maintaining inventory master files
General substantive procedures
Agree opening balances to prior year closing balance
Agree total of the General Ledger to Trial Balance & Financial Statements
Inspect minutes of meetings for authorization of transactions
Test presentation & disclosure of transactions in Financial Statements
Test castings & calculations of the General Ledger, documents, recons etc
Test castings & calculations of the General Ledger, documents, recons etc
Overall review for exceptions/unusual entries in General Ledger accounts
Obtain a management representation letter
Evaluate the effectiveness of internal control and the impact on the nature, timing and extent of substantive procedures
Perform analytical procedures - comparisons with prior year balances/budgets and follow up on any major fluctuations
Inventory substantive procedures
Valuation
Inventory should always be stated at the lower of cost or Net Realizable Value
Existence
The inventory should physically exist at year-end
Rights & Obligations
The entity has valid title to all inventory at year-end
Completeness
There are no unrecorded inventory or undisclosed items at year-end
Cut-off
Inventory transactions are recorded in the correct period.
Accuracy
Inventory has been determined through the allocation of raw material, labour and overhead manufacturing expenses to manufactured goods.
Presentation & Disclosure
Inventory is correctly classified and presented i.t.o. IFRS. Appropriate disclosures have been made about inventory factored or pledged to secure liabilities of the entity.