Audit Evidence and Inventory Procedures

Comprehensive vocabulary flashcards covering audit evidence, inventory cycle procedures, automated audit tools, IAS 37 disclosures, written representations, and Key Audit Matters (KAM).

Casting inventory listing

The use of software to confirm the total of the inventory listing is complete and accurate.

Aged inventory analysis

An extraction tool used to identify obsolete or slow-moving items which may require a write-down or an allowance.

Automated tools (Efficiency advantage)

Allows the audit team to test a large volume of inventory data more accurately and more quickly than if tested manually.

Automated tools (Training disadvantage)

Audit staff require a sufficient level of IT knowledge to apply automated tools when auditing the inventory system.

Live data corruption risk

The risk that live client data may be lost or corrupted if testing is performed on data in the live inventory system.

Inventory cut-off procedures

The recording of details from the last goods received notes and goods dispatched notes to form a basis for testing at the audit.

Test counts (Two-way)

Performing counts from inventory sheets to physical inventory and from physical inventory to inventory sheets.

IAS 37 (Contingent Liability)

States that the possibility of additional claims should be disclosed as a contingent liability when it is possible but not probable and quantifiable.

Emphasis of matter paragraph

A paragraph included in an unmodified audit report when a contingent liability is deemed to be adequately disclosed.

Qualified opinion (Disclosure)

An audit opinion given if a disclosure is considered inadequate or missing, indicating the financial statements are materially misstated.

Written representations

Audit evidence in the form of a letter from management or those charged with governance stating they have fulfilled their responsibility for the preparation of financial statements.

Written representation dating

The document must be signed by directors and dated as at the date the auditor’s report is signed, but not after.

Key Audit Matters (KAM)

Matters of most significance in the audit of the financial statements requiring significant auditor attention and communicated to those charged with governance.

KAM section content

Includes a description of the issue, why it is a KAM, how it was addressed in the audit, and any related disclosures.

Inventory site selection factors

Discussing which warehouses to attend based on the materiality and risk associated with each site.

Movement of inventory controls

The observation of procedures during counts to confirm that all inventory movements have ceased.