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AUDIT PROGRAM

CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
AUDIT OBJECTIVES
To determine whether:
A. Stock-in-trade balances represent all products,
materials and supplies to be sold or to be used in the
production process, which are owned by the entity,
physically exist and are properly recorded.
B. Stock-in-trade listings include all inventory items on
hand, in storage, on consignment or in transit, are
accurately compiled and the totals are properly
included in the inventory accounts.
. The ending stocks are determined as to !uantities,
prices, computations, excess stocks, etc., on a
consistent basis.
". Stock-in-trade is stated at the lower o# cost or market
and excess, slow-moving, obsolete and de#ective
items are reduced to net reali$able values on a
consistent basis.
%. Stock-in-trade is properly described and classi#ied,
and ade!uate disclosures &including disclosures o#
amounts that have been pledged and purchase
commitments' with respect to these amounts have
been made.
SUBSTANTIVE PROCEDURES
1. Overall Analytial Revie!
(.( )ave the client update carry #orward analyses o# the
#ollowing data by inventory category, location and*or
product line:
+nventory turnover rates,
"ays- sales in inventory,
.ross pro#it rates,
Book-to-physical inventory ad/ustments, and
0ni!ue client and industry statistics
&11111111111111111111111'. +nvestigate
signi#icant trends and #luctuations.
(.2 ompare the balances o# the inventory accounts by
ma/or category o# inventory &e.g., raw materials,
work-in-process, #inished goods, supplies, etc.' and*or
by location with prior year balances. +nvestigate
signi#icant #luctuations.
(.3 4btain and scan inventory listing to highlight items
having very high !uantities, negative or $ero
!uantities, large #luctuation in cost per unit #rom prior
period and items with signi#icant aging etc.
AUDIT PROGRAM
CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
". Physial O#servati$n
2.( 5rior to the year end physical inventory date, meet
with client personnel to determine the inventory plan
and time schedule and review #or ade!uacy. 4btain a
copy o# the client-s physical inventory procedures.
Arrange 67S) 8 o. sta##ing, including intero##ice
arrangements, i# necessary.
2.2 "etermine i# it is necessary to observe or con#irm
inventory held at other locations. &Scope*Sample:
1111111111, overage: 11111111119.'
2.3 "etermine i# it is necessary to seek expert:s help in
case o# speciali$ed nature o# inventory e.g.,
engineering products to ascertain the condition o# the
inventory.
2.; 4bserve physical inventory count.
2.< omplete inventory observation checklist or alternate
program steps.
2.= 5er#orm and record the #ollowing > o# test counts:
+nventory type > ounts
Be sure to record all relevant data. Also, per#orm
numerous unrecorded test counts.
2.? "ocument the rationale #or the test count scope, i.e.,
how the > relates to the reliance on the company-s
count procedures and whether certain large items were
selected to provide coverage o# the inventory balance.
2.@ 4btain and test client-s documentation o# inventory
tag*sheet control. 7etain copy #or subse!uent use.
&Scope*Sample: 1111111111.'
2.A 7ecord and obtain the #ollowing cuto## data #or
subse!uent use:
Be#ore A#ter
7eceiving
Shipping
4ther
2.(B ollect the sample o# inventory #or independent
laboratory test, i# unable to satis#y yoursel# as to the
exact nature * condition o# inventory e.g., chemicals
and oil products, etc.
AUDIT PROGRAM
CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
2.(( Chere no inventory count is per#ormed and the
alternate procedures are not providing su##icient and
appropriate audit evidence in respect o# material
inventory balance then consider modi#ication o# audit
opinion due to scope limitation.
2.(2 "ocument results o# inventory observation, including
the procedures per#ormed by 67S) 8 o #or
excess*obsolete inventory, other items noted and a
conclusion.
%. Invent$ry hel& !ith Thir& Parties
3.( irculari$e con#irmation #or inventories held by third
parties.
3.2 +n case o# non-replies or the response is not
considered reliable, i# the amount o# inventory is
material:
5er#orm physical count at third party location,
or
4btain certi#icate #rom third party regarding
the stock held by it through the client.
'. Invent$ry C$(nt at $ther than Balane Sheet &ate
;.( 5er#orm the #ollowing procedures i# inventory count is
carried out other than at the balance sheet date:
;.(.( +# the stock count is be#ore the balance sheet date,
roll-#orward schedule to be prepared to reconcile the
!uantity veri#ied at the date o# count with the !uantity
as at the balance sheet date. Deri#y reconciling items
on test basis.
;.(.2 +# the stock count is a#ter the balance sheet date, roll-
backward schedule to be prepared to reconcile the
!uantity veri#ied at the date o# count with the !uantity
as at the balance sheet date. Deri#y reconciling items
on test basis.
;.(.3 Douch purchases covering 1119 o# total purchases
made during the intervening period between balance
sheet date and the dated on which physical inventory
count is made.
;.(.; Douch issuances made covering 1119 o# total
issuances made during the intervening period between
balance sheet date and the date on which physical
count is made.
;.(.< 4btain reconciliation between inventory listing
balance appearing at balance sheet date and the
balance appearing at the date on physical count o#
inventory by adding back all purchases and deducting
all issuances made during the intervening period.
AUDIT PROGRAM
CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
;.(.= Scan inventory subsidiary accounts to ensure no ma/or
ad/ustment is made during the intervening period
without any supporting.
). S(#se*(ent Tie+in $, Physial Invent$ry Data
<.( Trace the test counts recorded during the physical
count to the priced-out physical inventory report and
per#orm the #ollowing:
<.(.( heck on sample basis items covering 1119 o# total
inventory cost, the !uantities appearing in the physical
inventory count listing with priced inventory count
listing.
<.(.2 heck mathematical accuracy o# the priced inventory
listing.
<.(.3 7eview the priced inventory listings #or the
reasonableness o# !uantities, unit prices and values.
+nvestigate any unusual #luctuations.
<.(.; 7eview the priced-out inventory report #or large,
unusual items. +nvestigate accordingly.
<.(.< 4btain the reconciliation o# the physical inventory to
the general ledger.
<.(.= Tie to priced-out physical inventory report and lead
schedule. +nvestigate reconciling items greater than
7s. 1111111111.
<.2 ompare book-to-physical ad/ustment to prior year.
<.3 %nsure that book-to-physical ad/ustment has been
properly recorded.
<.; %nsure that the !uantities in stores were approved by
the Euality Assurance*ontrol department.
-. Val(ati$n Test
=.( %nsure that the same cost #ormula is used #or
inventory items o# similar nature*purpose. A di##erent
cost #ormula is /usti#iable only in the case o# inventory
items with di##erent nature or use.
=.2 Also, ensure the consistent application o# such
#ormula.
=.3 Select items #rom the inventory listing and per#orm
the #ollowing: &Fisting Scope*Sample: 1111111111
overage: 11111111119.'
AUDIT PROGRAM
CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
=.3.( 0sing a 5B, examine the latest vendor-s invoice or a
su##icient number o# the most recent vendors- and
#reight invoices &and duty and other invoices, when
applicable' to cover at least 11111111119 o# the
!uantities on hand. &Gote the dates on the invoices
tested as a potential indication o# slow-moving or
obsolete inventory.'
=.3.2 6or similar types o# inventory items, per#orm an
overall test by calculating an average price and
reviewing it #or reasonableness. &Scope*Sample:
1111111111 overage: 11111111119.'
=.3.3 Select a sample o# items #rom the priced inventory
listing and compare the unit cost to the prior period
end. 6or items with ma/or price variances #rom the
prior period end, select some o# the most recent
vendor invoices to check the reasonableness o# prices.
=.; %nsure that manu#acturing overheads are allocated
systematically to the cost o# inventories and on a
consistent basis.
=.< %nsure that the cost o# inventories does not include:
i' Abnormal cost &wastage, labour and other
production overheads'
ii' Storage cost, i# not re!uired in the production
process
iii' Administration and selling overheads
iv' Ad/ustable sales tax
.. Net Realisa#le Val(e Test
?.( 4n a test basis obtain evidence o# actual market
values and compare with the cost appearing in the
priced inventory listing to ensure that inventories are
carried at lower o# cost or net reali$able value.
?.2 4btain evidence o# net reali$able value and test the
#ollowing:
?.2.( Trace the estimated selling prices to recent sales
invoices.
?.2.2 ompare estimated costs to complete the item.
?.2.3 %valuate historical ability to sell or return aged
products. onsider whether other means are available
to sell products.
?.2.; +# appropriate, propose an ad/ustment to properly state
inventories at the lower o# cost or net reali$able value.
?.2.< Summari$e the results o# the above testing.
?.3 4btain understanding o# client:s method #or
calculating net reali$ability o# inventory. "etermine
that it is reasonable and consistent between years.
AUDIT PROGRAM
CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
?.; %nsure that G7D is determined on an item by item
basis. +# not, check the basis #or grouping, similar
products with similar purposes or uses etc. can be
grouped.
?.< 4btain an analysis o# items identi#ied to be potentially
excess or obsolete, indicating past and #uture usage,
sales #orecasts and management:s evaluation o#
reali$ability. &Scope*Sample: 1111111111.'
?.= ompare the G7D with cost and ensure that:
?.=.( The G7D to be used #or the said comparison should
be o# the period near to the consumption*sale o# that
inventory.
?.=.2 +# the total stock includes !uantities held #or
contracted sale, G7D o# such stock should be based
on that contract price and the remaining !uantity
should be tested under normal procedures.
/. 0erhan&ise Invent$ry 1 Val(ati$n
@.( 6or purchased inventories priced at 6+64, select a
sample o# items #or testing #rom the inventory listing
and per#orm the #ollowing: Scope*Sample '
@.(.( %xamine a su##icient number o# the most recent
vendors: and #reight invoices &and duty and other
#orms, when applicable' to cover the bulk o# the
!uantities on hand.
@.(.2 Gote the dates o# purchase o# the items tested, as a
potential indication o# slow-moving or obsolete
inventory.
@.(.3 6or similar types o# inventory items, per#orm an
overall test by calculating an average price and
reviewing it #or reasonableness. &Gote that, i# prices
are not particularly volatile, it may be ade!uate to test
#or reasonableness by re#erring only to the most recent
invoice, the vendor:s catalogue or recent published
!uotations'.
@.2 6or purchased inventories priced at moving or
weighted average, test selected cost records as
#ollows: Scope*Sample '
@.2.( %xamine a su##icient number o# critical #orms and
documents & ' to support the calculation o# the
current inventory cost. 7ecalculate the moving or
weighted average cost.
@.2.2 Gote the dates o# purchase o# the items tested, as a
potential indication o# slow-moving or obsolete
inventory.
@.2.3 Trace the costs tested to those costs used to price the
#inal inventory listing.
AUDIT PROGRAM
CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
2. 0an(,at(re& Invent$ry 1 Val(ati$n
A.( 6or manu#actured inventories priced at standard costs,
per#orm the #ollowing to determine that standard costs
approximate actual costs. &Be sure to consider
materiality o# each component o# manu#actured cost H
material, labor and overhead H to total.'
A.(.( )ave the client prepare a comparative analysis
between years o# the components o# manu#actured
inventory &material, labor and overhead' in 7s. And 9
by location, product line, or #or total inventory, as
applicable. 7eview #or unusual #luctuations.
A.(.2 "etermine the date the standards were last updated
and whether the costs and allocation procedures are
acceptable and consistent with those o# the preceding
period.
A.(.3 7eview costs included in calculation o# inventory #or
tax purposes to identi#y any signi#icant di##erences.
A.(.; )ave the client prepare an analysis o# monthly
inventory variance accounts #or the period by type and
department. +nvestigate large or unusual variances.
"etermine i# a portion o# the variances should be
allocated to inventories to approximate actual costs.
A.(.< "etermine how standards and variances are developed
and test on a sample basis as #ollows:
omputation o# standard cost #or sample
items,
omputation o# variances on item to
item*global basis, and
Alternative o# variances to inventories and
charging o## to cost o# sales.
A.2 6or manu#actured inventories priced under a /ob-order
cost system, obtain an understanding o# the client:s
methods #or accumulating costs.
A.2.( Select a sample o# inventory items on-hand and trace
costs to cost summaries and their source documents.
Scope*Sample '
A.2.2 Be alert #or any abnormal costs being charged to the
/ob orders.
A.3 6or manu#actured inventories priced under a process
cost system, consider the possibility o# abnormal costs
being charged to inventory and the propriety o# the
client:s method o# accounting #or scrap or other
!uantity losses during production.
A.; %nsure that #ixed overheads are loaded on inventory
on the basis o# normal capacity in accordance with
+AS-2.
AUDIT PROGRAM
CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
A.< 4btain calculation o# actual overhead rate #or the
current year and review #or consistency between
years. 6oot and tie to support.
A.= ompare to standard overhead applied to inventory
and determine i# overhead is properly capitali$ed.
13. 4$r5+in+6r$ess
(B.( )ave the client prepare an analysis o# work-in-process
inventory items. Select items #or testing,
Scope*Sample:& ' and compare &a' the estimated
stage o# completion as observed during the physical
inventory and &b' the production stage through which
costs have been recorded. 4btain explanations #or
signi#icant di##erences.
(B.2 )ave the client prepare a schedule detailing the
components o# unit costs #or a sample o# work-in-
process and #inished goods inventory items.
&Scope*Sample: 1111111111111111111111111111.'
(B.3 Test the cost buildup schedule as #ollows:
Iatch the material costs with source data, and
Iatch standard*allocable overheads with
actual overheads and check reasonableness o#
overheads charge out rate used #or valuation o#
work-in-process.
11. Clerial A(ray
((.( Test the clerical accuracy o# all the reports manually
prepared. Also check the accuracy o# system
generated reports, either through omputer Assisted
Audit Techni!ues &AATs' or by manual checking.
1". O#s$lesene/I76air7ent
(2.( 4btain a comparative roll #orward o# the excess*slow
moving and obsolete inventory reserve and tie to
supports. +nvestigate unusual items.
(2.2 4btain movement and details o# provision made
reversals accounted #or during the period due to
disposal o# obsolete items.
(2.3 4btain details o# items o# inventory considered as
obsolete*slow moving and compare their valuation
with total provision made in this regard.
(2.; Gote the date o# purchase #rom the +nvoice as a
potential indication o# slow moving or obsolete
inventory.
AUDIT PROGRAM
CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
(2.< Analyse on a test basis the #uture sales value o# slow
moving items and obtain client:s comments regarding
expected #uture sales value or disposition o# goods.
1%. Ple&8e& Invent$ries
(3.( +n!uire o# management as to &a' the pledging or
assignment o# inventories and &b' goods held on
consignment or #or storage, demonstration, display or
processing that belong to others. onsider the
#ollowing as other potential sources o# indications that
clear title does not rest with the company:
- Iinutes.
- Foan agreements.
- Bank con#irmations.
- on#irmation o# liabilities.
- Sales terms.
(3.2 on#irm the details o# pledged or assigned inventories
with the pledgee or assignee &i# not already con#irmed
in connection with another audit area'.
(3.3 5ropose disclosure points #or signi#icant pledging or
assignment o# inventories.
1'. St$5+in+transit
(;.( )ave the client prepare an analysis o# accrued 6.4.B.
inventories that had been shipped but not yet received
at the end o# the period.
(;.2 %xamine selected invoices and shipping documents to
veri#y amounts and to determine whether title had
passed to the client on or be#ore the balance sheet
date. Scope*Sample:& '
(;.3 Analyse liabilities relating to stock-in-transit and
ensure completeness o# cost added to stock-in-transit.
(;.; +denti#y any commitments with regard to stock-in-
transit and ensure appropriate disclosures.
1). Invent$ries $n $nsi8n7ent
(<.( +nvestigate management regarding the provision, i#
any, regarding stock sent on consignment.
(<.2 onsider sale agreements regarding the using o#
passage o# title and ensure whether any stock
despatched to third parties should be considered as
stock on consignment.
AUDIT PROGRAM
CLIENT: __________________________________________________________
PERIOD: __________________________________________________________
SUBJECT: STOCK-IN-TRADE
Est.
Hrs
.
Phase/
Level
Procedres
!"P
Re#. B$
Co%%e&ts"E'()*&*t+o&
s
Other tests as &ee7e& neessary
0ana8e7ent Letter
5repare management letter points including:
+nternal control weaknesses,
Business improvement opportunities,
Fegal non-compliance,
Accounting system de#iciencies, and
%rrors and irregularities not material at the
#inancial statements level.
Disl$s(re
%nsure appropriate disclosure in accordance with the
reporting #ramework and #ill relevant portion o#
6inancial Statement "isclosure hecklist &6S"F'.
S(6ervisi$n9 revie! an& $nl(si$n
(. 5er#orm Senior review and supervision.
2. 7esolve Senior review points.
3. 7esolve 5artner and Ianager review points.
;. onclude response to the audit ob/ectives.
A(&it $nl(si$n
Based on the substantive test procedures, +*we per#ormed as outlined above, it is my*our opinion that the audit ob/ectives set #orth at
the beginning o# this audit program have been achieved, except as #ollows:
11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111
11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111
11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111
11111111111111 11111111111 11111111 1111111
Date:;;;;;;;;;;;; Si8nat(re J$# Inhar8e 0ana8er Partner