Audit procedures for stock balances in Balance Sheet
– Enquire into what costs are included, how these have been established and ensure that overhead addition is based on normal costs and is reasonable in relation to information disclosed by draft financial statements.
– Test check price on inventory, lists with official sales list bearing in mind any trade discounts which are normally granted off the list prices
– Ensure that inventories are valued at net realizable value if this is less than cost. Check if the relevant party processed inventories and raw materials have also been written down
– Following up any items which inventory records show are more than say 6 months in inventory. Enquire into the reasons for this and ascertain the possible realizable value of such items.
– Follow up any inventories which at the time of selling of product lines at less than usual selling prices e.g. due to completion, or substitute products on the market
– Follow up valuation of all ―second‖ items and ensure that they are valued at reasonable estimated net realizable value is less than cost
– Check re-order levels, check whether all stock items are subjected to a maximum or minimum stock levels
– Compare actual stocks held by independent officials with the stock records. All differences should be corrected and investigated
– Check on storage conditions which deter deterioration due to physical access e.g. heat, cold, microbial action.
– Check whether a continuous inventory is maintained. There should be at least an annual stock take
– Check procedures established for stock take
– Check procedures for identifying damaged, slow moving and obsolete stock and cut off procedures
– Check the purchases records to ensure completeness of stock records
– Check whether stock has been valued at lower of cost and net realizable value as per IAS 2
– Physically inspect stock in premises to ensure that closing stock figure actually exists.
