Chapter_12Auditingstocksandtangiblefixedassets

Chapter12:AuditingstocksandtangiblefixedassetsRecapCostAuthorisationValuationExistenceBeneficialOwnershipPresentationLearningobjectivesIdentifytheauditobjectivesapplicabletostocksExplainthenatureofstockrecordsDescribeprocedurestobefollowedataphysicalstocktakeDiscussconsiderationsrelevanttodeterminingtheauditstrategyforstocksDescribeprocedurestobefollowedwhenobservingphysicalstocktakeExplaintheauditproceduresforverifyingstockpricingIdentifytheauditobjectivesapplicabletotangiblefixedassetsDiscussconsiderationsrelevanttodeterminingtheauditstrategyfortangiblefixedassetsDesignasubstantiveauditprogrammefortangiblefixedassetsLearningobjectives(continued)StockManufacturingTransactions3stages:RawmaterialsawaitingprocessingWorkinprogressFinishedgoodsawaitingsaleSTOCK-AUDITOBJECTIVESTransactionclassAccountbalanceExistence/occurrencerecordedstockpurchase,transferandsaletransactionsoccurredintheperiodstocksphysicallyexistCompletenessallpurchases,transfersandsalesofstocksintheperiodhavebeenrecordedfortheperiodstocksincludeallitemsonhandTransactionclassAccountbalanceRights&obligationstheentityhasrightstostocksrecordedintheperiodtheentityhasrightstostocksatbalancesheetdateValuationormeasurementcostsappliedtostockshavebeenproperlydeterminedstocksareproperlystatedatlowerofcostornetrealisablevalueDisclosurestocktransactionssupporttheirpresentationinthefinancialstatementsstocksareproperlyidentifiedandclassifiedaccountingpoliciesareappropriatelydisclosedSTOCKRECORDSGoodsin/out/transitPerpetualstockrecordsusuallymaintainedbymanufacturingentities;otherentitiesmayrelyonphysicalcountrangefromquantityonlyrecordsthroughtofullyintegratedquantityandcostrecordsFunctionsrecordinggoodsintostockrecordinggoodsfromstockrecordingtransferscomparisonofbooktophysicalDifferences—physicaltostockrecordsTheftDamageObsolescenceFailtorecordinFailtorecordoutThirdpartyTransfer/QuarantineSTOCK-AUDITSTRATEGYMaterialityandinherentrisksHighvolumeoftransactionsContentiousaccountingissuesincludingdeterminationofcostandvalueDiversenatureposesproblemsindeterminingquantitiesandrelianceonexpertsStorageatmultiplesitesposesriskoftheft,damageandofaccountingforgoodsintransitVulnerabletofallinvalueAuditStrategyControlrisklowwherereliablefullyintegratedperpetualstockrecordsarekeptmediumwherereliablebutnon-integratedperpetualrecordsarekepthighwherenoorunreliableperpetualrecordsarekeptAuditstrategydependsonnatureandreliabilityofstockrecordsformanufacturingentities,theavailabilityofreliablecostrecordsisessentialindeterminingcostStockcountTheauditorisnottocountandvaluestock,buttoensurethatstockistakenandvaluedproperlybyclient'sstaff.Includesreviewingstocktakinginstructionsputintoplacebymanagement,observationofthestockcount,andcarryoutasampleofrandomphysicalstockcounts.Stockcount(ISA501)“Wheninventoryismaterialtothefinancialstatements,theauditorshouldobtainsufficientappropriateauditevidenceregardingitsexistenceandconditionbyattendanceatphysicalinventorycountingunlessimpracticable.”Thisallowstheauditorto“observecompliancewiththeoperationofmanagement’sprocedures”andto“provideevidenceastothereliabilityofmanagement’sprocedures.”STOCKTAKEStockcountproceduresassigningresponsibilitypreparationidentificationcountingcheckingrecordingclearingcut-offComparisonwithrecordsrecountmaterialdifferencesinvestigatecausemaintaincumulativerecordofdifferencesadjustrecordsReviewStocktakingArrangementssupervisionwhichstaffareinvolvedmakeupandtrainingofteamscontroloverstocksheets-sequentiallynumberedteamssignsheetstoacknowledgeperformance.OBSERVATIONOFSTOCKTAKEEvaluateentityplansObservecounttestcompliancewithplansmaketestcountsidentifydamagedetc.itemsaccountforuseofcountsheetsetc.recordcut-offAttendanceatStocktakeobserveproceduresareinstructionscarriedoutdualfunctionofauditoristhereadequatesupervisionisstockdividedintoareasisstockmarkedwhencountedtoavoidomissionordouble-countingisdamagedoroldstockhighlightedonstocksheetsareallstocksheetsaccountedfor.StockCountFollow-upcounttestclericalaccuracyoffinalstocklisttracetestcountstolisttestfinallisttoandfromcountrecordscomparecountswithphysicalstockifanytestcut-offverifymovementbetweendateofcountandperiodendSTOCKPRICINGWithsuppliers’invoicesforpurchasedstockWithcostingrecordsformanufacturedstockproprietyofcostsystemcontroleffectivenessofcostrecordsAssessneedforwrite-downtonetrealisablevalueStockPricingCostofrawmaterialsperinvoiceDirectlabourcostsForWIP-material,labourandoverheadForFG-material,labourandoverhead,butneedtoevaluatelowerofcostandNRVReviewStockValuationMethodiscostaccuratelyidentifiedonstockrecordsorinvoiceshowareoverheadsevaluatedforinclusioninCostfiguresisvaluationmethodconsistentlyapplied(e.g.FIFO)treatmentandvaluationofdamagedoroldstockperformsomesamplecalculationsObservesalesafterbalancesheetdatetoconfirmvaluation.SubstantiveProceduresforstockDesigningproceduresforstockInitialproceduresTraceopeningbalancesReviewactivity