a) Allocation, Valuation and Accuracy Inventory is a Current Asset in a Balance Sheet. The inventory was valued by using an incorrect code for the more expensive items of inventory. Probably, there is an error or the management was trying to provide a better picture of its financial position. If a misstatement of inventory has occurred there will be an impact on what the company reports as profit. An inaccurate record of inventory will result in the company not knowing its inventory position and not being able to meet customers’ orders. There must be an established documented process for stock take e.g. a periodical process at year end or a perpetual process with continuous stock take over the year. Each item in the inventory must be physically inspected during the stock take. There must be records of each stock which must be updated and signed after every physical inspection. There must be a report to …show more content…
Under ASA501 an auditor is obliged to obtain sufficient evidence of the existence and condition of inventory by attending the stock take unless it is impractical to do so. Before the stock take the auditor should review and plan for the stock take by identifying the location of goods, examining the control and recording process for inventory and timing of the count of inventory. The auditor also needs to identify any issues with the procedures of internal control. For example, if the counting process is inadequate then this