AUDITINGCHAPTER 15.ppt

GBW 8th ed., Ch. 15 AUDITINGCHAPTER 15 Inventory Fixed Assets By David N. Ricchiute TOPICS Nature of conversion cycle Auditor’s consideration of controls for inventory, fixed assets Substantive tests for inventory, fixed assets Audit judgment for impaired assets Computer-assisted audit techniques for inventory, fixed assets Assurance service opportunities INVENTORY DOCUMENTS Labor charge report Summary labor costs for work-in-process Materials requisition Perpetual inventory record DOCUMENTS FOR FIXED ASSETS Depreciation schedule Overhead application report Summary overhead applied to work-in-process INVENTORY CONVERSION: Nonmanufacturing Retailer Wholesaler Costs: Holding physically controlling prior to sale INVENTORY CONVERSION: Manufacturing Costs Raw materials Transformation costs Direct labor Manufacturing overhead INVENTORY CONTROLS Supervisor approval for materials requisition Inventory Control personnel control raw materials, finished goods Segregation from purchasing, receiving, shipping, production, recording Responsible for transfers in, out, inventory levels, reports slow moving, damaged goods MONITORING INVENTORY LEVELS Economic order quantity models Optimize carrying costs with risk of shortages Just-in-time inventory management INVENTORY ACCOUNTING Perpetual inventory records Quantities, locations, selected cost information Cost records Accumulates raw materials, direct labor, overhead Applies costs by appropriate method FIFO, LIFO, AVERAGE INTERNAL CONTROL OBJECTIVES Authorization Execution Recording Access to assets AUTHORIZATION: Inventory Objective, Error, Procedure Objective Error Procedure EXECUTION: Inventory Objective, Error, Procedure Objective Error Procedure RECORDING: Inventory Objectives, Errors, Procedures Objectives Errors Procedures ACCESS: Inventory Objectives, Errors, Procedures Objectives Errors Procedures FIXED ASSET ACCOUNTING Detailed records for each asset Purchase date, cost, deprec