10 December 2009
Is there any provision whereby inventory count may not be carried out in a financial year without any qualification in the audit report. Further read somewhere that is the Company adopts some sort of statistical sampling methods, then they can avoid physical stock take provided the system is robust. What is this statistical sampling for inventory procedures.
13 December 2009
It depends upon the total value involved in the inventories looking to the size of the business. Also it depends upon whether goods involved are of costly enough.
Now-a-days; books are maintained on computers so you can know the quantities as per book records.
If sound internal controls are there; print an inventory sheet as per book records and get it certified by the management. Similarly current date's (when you are conducting the audit) inventory should also be printed and checked as per physical existence.
If you see that the GP Ratio is one and same in comparison to the previous year and prices also remained almost constant during the year under review; then you can assume the same as correct one.
However; last days inventory purchased should be taken care of. See the quantities consumption from the records and analyse whether upon the face of the figures these represent true values.
If system is sound enough; you can verify the current year's inventory to check the internal control system.
Some more points can be taken into account:
1. Person engaged in inventory handling and his reporting pattern to the management.
2. Requirement of materials fixed by the management i.e. Month's requirement and purchasing pattern.
3. Working of Inspection department. See how many times goods are returned.
4. Present demand of the product. If it is regular one; than huge quantities may not be in stock. Even if there is more; it may be possible that some of the goods are of less value than at the value included in the inventories.
5. Statistical sampling should be used carefully. If there are many types of raw materials; you can focus your attention on valued materials and check some types of materials in toto.
CAclubindia
