Page 92 - Auditinf Electronic System

Chapter six

Inventory and warehouse cycle

In this Chapter we will cover:

1-Financial statement Cycles meaning

2-Classes of transactions in sales and Collection Cycle

3-Auditing Acquisition and Payment Cycle

First: Business functions in Inventory and warehouse cycle and the related
documents:

Second: Designing tests of controls and substantive tests of transactions for Cost
of inventory

Third: Design test of Details for accounting balances

Financial statements Cycle:

Audits are performed by dividing financial statements into smaller segments
or components. The division makes the audit more manageable and aids in the
assignments of tasks to different members of the audit team. A company way to
divide an audit is to keep closely related types of transactions and account balances
in the same segment. This is called the cycle approach.

Ex: Inventory, purchases, Raw materials, work in process, Finished
goods, Cost of goods sold Therefore they are all parts of Inventory and warehouse
cycle. One of the most complex audit accounts,

.Factors affecting the complexity of the audit of inventory include

1. Inventory is often the largest account on the balance sheet.
2. Inventory is often in different locations, making physical control and counting

difficult.
3. Diverse inventory items such as jewels, chemicals, and electronic parts are often

difficult for auditors to observe and value.
4. Inventory valuation is also difficult when estimation of inventory obsolescence

is necessary and when manufacturing costs must be allocated to inventory.

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‫جميع الحقوق محفوظة ـ الإعتداء على حق المؤلف بالنسخ أو الطباعة يعرض فاعله للمسائلة القانونية‬