Audit Objectives - Inventory

The Auditors’ Objectives in Audit of Inventories and Cost of Goods Sold are to:

1. Consider internal control over inventories and cost of goods sold.

2. Determine the existences of inventories and the occurrence of transactions affecting cost of goods sold.

3. Establish the completeness of inventories.

4. Establish that the client has rights to the recorded inventories.

5. Establish the clerical accuracy of records and supporting schedules for inventories and cost of goods sold

6. Determine that the valuation of inventories and cost of goods sold is arrived at by appropriate methods.

7. Determine that the presentation and disclosure of inventories and cost of goods sold is adequate, including disclosure of classifications of inventories, accounting methods, and any inventories pledged as collateral loans.

Audit Program for Inventories and Cost of Goods Sold

Internal control over inventories and cost of goods sold

1. Obtain an understanding of internal control over inventories and cost of goods sold.

2. Assess control risk and design additional tests of controls for inventories and cost of goods sold.

3. Perform additional tests of controls for those controls which the auditors plan to consider supporting their planned assessed levels of control risk

a. Examine significant aspects of a sample of purchase transactions.

b. Test