Audit of Inventories for a Trading or Manufacturing Company Paper Example

Paper Type:  Essay
Pages:  4
Wordcount:  874 Words
Date:  2022-11-28


For a trading or manufacturing company, the inventory balance is usually a material of entry on the balance sheet. This postures several encounters to the physicians in the review of

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Inventory. Companies whose principles are mostly export of goods, manufacturing, and trading have a high volume of list thus creates dangers of misstatement of the account balance. Things even get more complicated where the accounting record and documents are not maintained properly, especially when the auditor has to join to the end of year inventory sum after or formerly the year end which comprises of many locations.

Audit of inventory does not stopover at inventory sum. The auditor is also obligatory to check the assignment and allocation of price to list based on the manager's inventory movement, supposition, classify old or slow poignant items and trial check that the record is stated at an inexpensive price and net achievable value. When the operation of a company is understood, and the market ailment, the company's auditor easily make judgments. This paper will outline the basic work of an auditor in an organization.

Common Issues Addressed

In order of the auditor to address this issue, he or she needs to understand the costing method that is implemented by the company. Is the company using the weight average cost (WAC) or first-in-first-out (FIFO) to justify the price of the inventory? The WAC technique governs the number of items from WAC of the same things to the start of retro and the price of the same commodities produced or purchased during a particular time. FIFO process assumes that the inventory commodity that was created or bought are vended first (Willeke et al., 2016). Therefore, the items outstanding in the record after that time are those lately produced or purchased. When testing inventories beneath WAC, auditors should demand a comprehensive program of stocks for the designated examples and confirm in the supporting documentation such as sales invoices and the suppliers. In the unit testing for the lists under FIFO price method, other than when checking if the inventory commodities are moving in the manner of FIFO. Auditors require a vow to the particular dealers' invoice for the cost specified in the inventory.

Importance of Checking the Inventory

Inventories are measured at the lower net and cost available price. Cost of stock contains the value of translation, cost of purchase and other expenses experienced when bringing the inventories to their current condition and location. Cost of inventories might not be recovered if the records are obsolete, spoiled or the purchasing price have lowered (Alamri et al., 2016). Moreover, the writing of history down to net attainable value with the opinion that the possessions should not be carried in extra of quantity likely to be grasped from their use or sale. Auditors have to check the deals after the end of a year and make sure that the records are not approved at a more than possible price.

Practical Consideration of the Inventory

In the part of risk assessment and audit preparation actions, the auditor is obligatory to increase the understanding of the variations in the financial environment disturbing the catalogs detained by the corporation. The demand of the clients is typically connected with the central economic situation and maybe suggestively affected throughout an economic recession, mainly when the order of the commodity is elastic. Nature of the accounts is similarly essential for aspect for the auditor to deliberate when assessing reasonableness and adequacy of grant for inventory uselessness. Perishable goods such as vegetables and fresh fruits which have a virtual short shelf life and electronics such as phones and computers are subject to the risk of becoming useless (Guo, 2018). However, there are the generic items such as spare parts which have an extended shelf life thus are not likely to go obsolescence if they are stored in the right way, and continue to be used in the market. Concerning to the inventory, the auditor should keep observation on the state of the stock. Signs of the inventory obsolescence are expired kite goods, dust, and rust on the products. They should be at good state all the time to avoid the selling of damaged and useless products.


The inventory audit weights objectives that are in the business and gives guidelines of the whole business. Generally the auditors controls objectives and ensures accuracy is maintained. When the auditor work hand in hand with other members from the organization, results are easily obtained. Later this results from the auditor help in the planning of the organization and dealing with other difficult situations from the company.


Alamri, A. A., Harris, I., & Syntetos, A. A. (2016). Efficient inventory control for imperfect quality items. European Journal of Operational Research, 254(1), 92-104. Retrieved from

Guo, X. (2018). Inventory report: Dutch Smart Chains fortransport of perishable products (No. 1862). Wageningen Food & Biobased Research. Retrieved from

Willeke, S., Ullmann, G., & Nyhuis, P. (2016, May). Method for an Energy-Cost-Oriented Manufacturing Control to Reduce Energy Costs: Energy Cost Reduction by Using a New Sequencing Method. In 2016 International Conference on Industrial Engineering, Management Science and Application (ICIMSA) (pp. 1-5). IEEE. Retrieved from

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Audit of Inventories for a Trading or Manufacturing Company Paper Example. (2022, Nov 28). Retrieved from

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