Audit Program

Audit Program Design Part III

AUDIT PROGRAM DESIGN PART III

Inventory and Warehousing Cycle

The audit of the inventory and warehousing cycle is designed to test inventory counts, processes, and operations. The classes of transactions in this cycle include sales, value of inventory, cost of goods sold, sales returns and allowances, and estimates of allowance for slow moving inventory.

Tests of Controls and Substantive Tests of Transactions

Table WK6-1 displays the interrelationships of the transaction related to audit objectives, tests of controls, and substantive tests of transactions that should be approved during the audit process of Apollo Shoes, Inc.

Table WK6-1. Inventory Warehousing Cycle Tests of Controls and Substantive Tests of Transactions Audit Design (Arens, Elder, & Beasley, 2006)

Inventory – Apollo Shoes, Inc.Transaction-Related Audit Objectives – Tests of Controls - Substantive Tests of Transactions |

Transaction-Related Audit Objective | Tests of Controls | Substantive Tests of Transactions |

Inventory as recorded on tags exists (existence). | * Select a random sample of tag numbers and identify the tag with that number attached to the actual inventory. | * Observe whether movement of inventory takes place during the count. |

Existing inventory is counted and tagged, and tags are accounted for to make sure none are missing (completeness). | * Examine inventory to make sure it is tagged. | * Observe whether movement of inventory takes place during the count. * Inquire as to inventory in other locations. |

Inventory is counted accurately (accuracy). | * Recount client’s counts to make sure the recorded counts are accurate on the tags (also check descriptions and unit of count, such as dozen or gross). * Compare physical counts with perpetual inventory master file. | * Record client’s counts for subsequent testing. |

Inventory is classified correctly on the tags (classification). | * Examine inventory...