Performing Tests of Balances Series Part 4 - Auditing Inventories

Date: 1/15/2025
Time: 12:00 PM - 2:00 PM EST
CPE Credit: 2 hours

Learning how to audit inventories centers on inventory observations, pricing, and clerical tests and learning to “what extent” auditing procedures should be applied. Somewhat different than other major audit areas, entities that account for inventories using either the physical or perpetual inventory methods experience most of their risks of material misstatement in counting, pricing and compiling the inventory components.

Similar to other audit areas, the amount of audit work for inventories depends on the risk of material misstatement (RMM) evaluations at both the financial statement and classification (assertion) levels. Based on an understanding of a client’s industry and its business, particularly its operations, the nature of its inventories, and its inventory accounting method (physical or perpetual), the auditor identified the risks of material misstatement and designs auditing procedures to prevent the financial statement assertions for inventories from being misstated.

Topics Covered

• A review of accounting and auditing standards
• A review of the elements of audit strategy
• The process of linking RMM with auditing procedures
• How to perform analytical and tests of balances procedures for inventories

Learning Objectives:

• Understand the basic procedures for auditing inventories
• Understand the affects of assessed levels of risk of material misstatement on inventory auditing procedures for inventories accounted for by the physical and perpetual inventory methods
• Learn ways to audit inventories more efficiently
• Be able to design and prepare the most efficient documentation for inventories auditing procedures