Topic 11 verification of balance sheet items (1)
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This document discusses audit procedures for verifying various balance sheet items including property, plant, and equipment (PPE), inventory, and cash. It notes that PPE purchases are material amounts that are recorded for several years, requiring vouching, physical examination, analytical procedures, inquiry, and recalculation. Inventory presents challenges due to its size, multiple locations, diversity of items, and valuation issues. Main inventory control issues involve physical control over inventory locations and restricted access, as well as adequate documentation for transferring inventory and recording transactions.
Topic 11 verification of balance sheet items (1)
- 1. TOPIC 11: VERIFICATION OF BALANCE SHEET ITEMS References: Chapter 10 AUD390 2011
- 2. AUD390 AUDITING DIA VERIFICATION OF BALANCE SHEET ITEMS Cash Chapter 10 Long Term Liabilities, Shareholder’s Equity & Income Statement Chapter 10 Property Plant & Equipment Chapter 10 Inventory Chapter 10
- 3. Reasons need to audit: Fewer time involved in purchasing fixed assets The amount of each purchase normally material The fixed asset is likely to be kept & maintained in the accounting records for several years AUD390 AUDITING DIA
- 4. Vouching Physical examination Substantive analytical procedures Inquiry and scanning Recalculation General procedures Audit tests possibly performed on PPE
- 5. Factors effecting the complexity of the audit of inventory It is a major item on the balance sheet, & often the largest item making up the accounts included in working capital Inventory in different location, which make physical control & counting difficult Diversity of the items in inventory, such as jewels, chemicals & electronic parts Difficulty in valuation due factors such as obsolescence & the need to allocate manufacturing cost to inventory AUD390 AUDITING DIA
- 6. Main control issues: 1. Physical Control – Adequacy of the physical control over inventory (raw material, work-in- progress, finish good) – Restriction on the accessibility of the inventory – Competent custodian of the inventory AUD390 AUDITING DIA
- 7. 2. Documents & Records For Transferring Inventory – Adequate number of documents to verify the transferring process (PO, Receiving Report, SO, SI) – Recording of transactions in relevant accounts AUD390 AUDITING DIA