 Ship goods and records revenue and cost

Tracking shipments and associated expenses in the course of auditing the sales and
collection cycle, auditors learn about and put to the test internal controls over recording
shipments, including steps to ensure the accuracy of the credits to inventory recorded in
perpetual inventory master files. Auditors will review the bill of materials for a selection of
finished goods for accurancy and completeness. Finished goods analysis is an inventory audit
procedure commonly used in production or manufacturing. It counts inventory when we
finish a product rather than taking an inventory of the individual parts. Shipping invoice
matching compares the overall cost of shipping goods with the number of items shipped.
This helps to determine that we’re shipping the goods for the correct amount of money. We
can perform this audit at random to help ensure that the costs stay consistent. In essence,
all goods are accounted for and given a distinct value upon completion to guarantee the
financial statements are accurate.

 Physical observe inventory

Physical count are wall-to-wall inventory checks that account for all items. The best
way for auditors to verify existence of assets is to take part in the physical inventory count.
Auditors should first observe a company inventory count inventory count if at all possible.
This is an excellent opportunity to understand the count procedure and become aware of
any possible errors in their method. In addition to observing a count, auditors should
perform their own independent count. Auditors can count just a portion of inventory and
extrapolate results to the entire population. Physical count typically performed once a year
at the company’s financial statement period-end. These are the inventory counts that will be
subjected to external audit if required or desired by the company. As mentioned above,
auditors will obrserve either the in-house team ot third party that is counting the inventory,
to ensure they are comfortable with the procedures in place. The auditors will then do
random test counts to validate the numbers. Then, we can compare the amount of
inventory to the expected numbers in the company’s database or inventory system. This
method is one of the more common ways to track inventory because it allows to quickly
identify when to order new supplies. A physical counts are regularly repeated sequence of
checks that focus on select amount or subset of the total inventory. For that reason, physical
counts can provide an ongoing measurement of inventory accuracy and procedure
execution.
 Price and compile inventory

Auditors must verify that the physical counts of inventory are correctly priced and
compiled. Inventory price tests include tests of the client’s unit prices to determine whether
they are correct. Adequate control for unit cost is needed to make sure company is valuating
ending inventory properly. Standard cost records that indicate variances in material, labor
and overhead costs are helpful to evaluate the reasonableness of production records.
Management should also have someone independent of the department responsible for
determining the costs review them for reasonableness. Auditors must verify that the
physical counts of inventory are correctly priced and compiled. Inventory compilation tests
include testing the client’s summarization of the inventory counts, recalculating price times
quantity, footing the inventory summary and tracing that totals to the general ledger. The
most important internal control for accurate unit costs, extensions, and footings is internal
verification by a competent, independent person who relies on adequate documents and
records that were used for taking the physical count.