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Arens Chapter21
Arens Chapter21
Arens Chapter21
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Learning Objective 1
Describe the business functions
and the related documents and
records in the inventory and
warehousing cycle.
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Work-in-Process
Beginning Cost of
inventory goods
manufactured
Ending
inventory
Finished Goods
Beginning Cost of
inventory goods sold
Cost of
goods sold
Ending
inventory
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Learning Objective 2
Explain the five parts of the audit
of the inventory and warehousing
cycle.
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Store
raw
materials
Process
the
goods
Store
finished
goods
Ship
finished
goods
Flow
Receive
of
raw
Inventory materials
Put
materials
in
storage
Put
materials
in
production
Put
completed
goods in
storage
Ship
finished
goods
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Audit of Inventory
Part of audit
Acquisition and
payment plus
payroll and personnel
Internally transfer
assets and costs
Inventory and
warehousing
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Audit of Inventory
Part of audit
Physically observe
inventory
Inventory and
warehousing
Inventory and
warehousing
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Learning Objective 3
Design and perform audit tests
of cost accounting.
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Audit procedures
Sample size
Items to select
Timing
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Learning Objective 4
Apply analytical procedures to
the accounts in the inventory
and warehousing cycle.
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Possible misstatement
Overstatement or
understatement of
inventory and cost
of goods sold
Obsolete inventory
Overstatement or
understatement
of inventory
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Possible misstatement
Overstatement or
understatement of unit
costs, which affect
inventory and cost of
goods sold
Misstatements in
compilation, unit costs, or
extensions, which affect
inventory and cost of
goods sold
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Possible misstatement
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Phase I
Phase I
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Audit procedures
Sample size
Items to select
Phase III
Timing
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Learning Objective 5
Design and perform physical
observation audit tests
for inventory.
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Audit Decisions
Timing
Sample size
Selection of items
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Balance-related Audit
Objectives
Existence:
Inventory as recorded on tags exist.
Completeness:
Existing inventory is counted and tagged.
Accuracy:
Inventory is counted accurately.
Classification:
Inventory is classified correctly on the tags.
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley
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Balance-Related Audit
Objectives
Cutoff:
Transactions are recorded in the proper period.
Realizable value:
Obsolete and unusable inventory items are
excluded or noted.
Rights:
The client has rights to inventory recorded
on tags.
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley
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Learning Objective 6
Design and perform audit tests
of pricing and compilation
for inventory.
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Balance-Related Objectives:
Inventory Pricing and Compilation
Detail tie-in
Existence
Completeness
Accuracy
Classification
Realizable value
Rights
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Valuation of Inventory
Pricing purchased inventory
Pricing manufactured inventory
Cost or market
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Learning Objective 7
Integrate the various parts of
the audit of the inventory
and warehousing cycle.
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Interrelationship of Various
Audit Tests
Tests of acquisition
and payment cycle
Raw materials
Work in process
Acquisitions of
raw materials
Other manufacturing
costs
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Interrelationship of Various
Audit Tests
Tests of payroll and
personnel cycle
Work in process
Work in process
Direct labor
Indirect labor
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Interrelationship of Various
Audit Tests
Inventory tests
Tests of cost accounting records
Tests of physical inventory observation
Tests of pricing and compilation
Raw materials
Work in process
Ending inventory
Ending inventory
Finished goods
Ending inventory
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley
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Interrelationship of Various
Audit Tests
Work in process
Finished goods
Cost of goods
manufactured
Cost of goods
manufactured
Tests of
sales and
collection cycle
Finished goods
Cost of goods sold
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End of Chapter 21
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