A4 M4 Inventory Cycle

Purchasing Inventory

Prepares and issues serially numbered approved purchase orders to accounting and receiving departments.

Receiving Inventory

Verifies quantities received checks for damaged goods prepares receiving report and delivers goods to warehouse using blind purchase order copies.

Warehouse Inventory

Acts as custodian for verified quantities of goods received.

Shipping Inventory

Ships goods upon receiving proper authorization in the form of an approved sales order from the credit department.

Inventory Observation Requirement

Serves as a required auditing procedure involving dual-purpose tests to evaluate count instructions observe procedures inspect goods and perform test counts.

Alternative Inventory Procedures

Allowed only when physical observation is impractical impossible or when inventory is immaterial.

Interim Physical Inventory Count

Permitted when a well-kept perpetual inventory system and physical cycle counts exist provided changes between count and statement dates are tested.

Off-Site Inventory Auditing

Requires physical count observation if off-site or consigned inventory is significant otherwise confirmation is sufficient.

Auditing Inventory Completeness

Traces test counts and prenumbered inventory tags to the physical inventory report.

Auditing Inventory Valuation Allocation and Accuracy

Foots inventory report reconciles to general ledger inspects obsolete or damaged goods and tests vendor invoices labor rates and overhead calculations.

Auditing Inventory Existence and Occurrence

Vouches items from the inventory report sheet to prenumbered inventory tags and locates items to perform test counts during physical observation.

Auditing Inventory Rights and Obligations

Ensures excluded consigned inventory on hand included consigned goods held by others and proper accounting for inventory in transit based on shipping terms.

Auditing Presentation and Disclosure Completeness Inventory

Ensures required disclosures for cost methods valuation methods inventory balances consigned goods pledged inventory write-downs and warranties.

Auditing Presentation and Disclosure Valuation Allocation and Accuracy Inventory

Reads footnotes and related disclosures to verify accuracy and appropriate presentation amounts.

Auditing Presentation and Disclosure Rights Obligations and Occurrence Inventory

Inquires of management and reviews loan agreements and minutes to verify pledged inventory and warranty disclosures.

Auditing Presentation and Disclosure Understandability of Presentation and Classification Inventory

Reads disclosures for clarity and reviews records for proper classification among raw materials work-in-process and finished goods.