Assertion Evidence for Inventory

Question 1

Assertions about Classes of Transactions - Occurrence

Answer 1

Vouch a sample of inventory additions (i.e., purchases) to receiving reports and purchase requisitions.

Question 2

Assertions about Classes of Transactions - Completeness

Answer 2

Trace a sample of receiving reports to the inventory records (i.e., master file, status report).

Question 3

Assertions about Classes of Transactions - Authorization

Answer 3

Test a sample of inventory shipments to ensure there are approved shipping tickets and customer sales

Question 4

Assertions about Classes of Transactions - Accuracy

Answer 4

Recompute the mathematical accuracy of a sample of of inventory transactions (i.e., price x quantity). Audit standard costs or other methods used to price inventory. Trace costs used to price goods in the inventory compilation to standard costs or vendor’s invoices.

Question 5

Assertions about Classes of Transactions - Cutoff

Answer 5

Trace a sample of time cards before and after period end to the appropriate weekly inventory report, and trace the weekly inventory report to the general ledger to verify inventory transactions are recorded in the right period.

Question 6

Assertions about Classes of Transactions - Classification

Answer 6

Examine a sample of inventory checks for proper classification into expense accounts.

Question 7

Assertions about Account Balances at Period End - Existence

Answer 7

Observe count of physical inventory

Question 8

Assertions about Account Balances at Period End - Rights and Obligations

Answer 8

Verify that inventory held on consignment for others is not included in inventory. Verify that bill-and-hold goods are not included in inventory.

Question 9

Assertions about Account Balances at Period End - Completeness

Answer 9

Trace test counts and tag control information to the inventory compilation

Question 10

Assertions about Account Balances at Period End - Valuation and allocation

Answer 10

Obtain a copy of the inventory compilation and agree totals to general ledger. Trace test counts and tag control information to the inventory compilation. Test mathematical accuracy of extensions and foot the inventory compilation. Inquire of management concerning obsolete, slow-moving, or excess inventory. Review book-to-physical adjustment for possible misstatements.

Question 11

Assertions about Presentation and Disclosure - Occurrence, and rights and obligations

Answer 11

Inquire of management and review any loan agreements and board of directors’ minutes for any indication that inventory has been pledged or assigned. Inquire of management about issues related to warranty obligations.

Question 12

Assertions about Presentation and Disclosure - Completeness

Answer 12

Complete financial reporting checklist to ensure that all financial statement disclosures related to inventory are made.

Question 13

Assertions about Presentation and Disclosure - Classification and understandability

Answer 13

Review inventory compilation for proper classification among raw materials, work in process, and finished goods. Read footnotes to ensure that required disclosures are understandable.

Question 14

Assertions about Presentation and Disclosure - Accuracy and valuation

Answer 14

Determine if the cost method is accurately disclosed (e.g., LIFO). Inquire of management about issues related to LIFO liquidations. Read footnotes and other information to ensure that the information is accurate and properly presented at the appropriate amounts.