Before the stock taking, the auditor should carry out the following: –
(i) Review prior year‘s working papers, familiarize himself with the nature, volume and location of stocks, consider the controls and recording procedures over stock.
(ii) Identify problem areas in relation to the system of internal control and decide whether reliance can be placed on internal auditors.
(iii) If stock held by third parties is material, or the third party is insufficiently independent or reliable, then arrange a stock-take attendance at the third party‘s premises otherwise, arrange third party confirmation.
(iv) If the nature of the stocks is specialized then he will need to arrange expert help or to review the client‘s own arrangements.
(v) Examine the client‘s stock taking instructions: If found inadequate, the matter should be discussed with the client with a view to improving them prior to stock-take.
(vi) Auditors should perform analytical procedures on stock as part of the planning process.
