Topic 11 verification of balance sheet items (1)

1. TOPIC 11: VERIFICATION OF
BALANCE SHEET ITEMS
References: Chapter 10
AUD390 2011

2. AUD390 AUDITING DIA
VERIFICATION
OF BALANCE
SHEET ITEMS
Cash
Chapter 10
Long Term
Liabilities, Shareholder’s
Equity & Income Statement
Chapter 10
Property Plant
& Equipment
Chapter 10
Inventory
Chapter 10

3.  Reasons need to audit:
 Fewer time involved in purchasing fixed assets
 The amount of each purchase normally
material
 The fixed asset is likely to be kept &
maintained in the accounting records for
several years
AUD390 AUDITING DIA

4.  Vouching
 Physical examination
 Substantive analytical procedures
 Inquiry and scanning
 Recalculation
 General procedures
Audit tests possibly performed on PPE

5.  Factors effecting the complexity of the audit of
inventory
 It is a major item on the balance sheet, &
often the largest item making up the accounts
included in working capital
 Inventory in different location, which make
physical control & counting difficult
 Diversity of the items in inventory, such as
jewels, chemicals & electronic parts
 Difficulty in valuation due factors such as
obsolescence & the need to allocate
manufacturing cost to inventory
AUD390 AUDITING DIA

6.  Main control issues:
1. Physical Control
– Adequacy of the physical control over
inventory (raw material, work-in-
progress, finish good)
– Restriction on the accessibility of the
inventory
– Competent custodian of the inventory
AUD390 AUDITING DIA

7. 2. Documents & Records For Transferring
Inventory
– Adequate number of documents to verify
the transferring process (PO, Receiving
Report, SO, SI)
– Recording of transactions in relevant
accounts
AUD390 AUDITING DIA