x���KS�0����c9D��zKm�BǗ��u��Ա�c���X�NJ"�Z��>~^��L[N��8#���%M3�/$��8��T@HƇ�l��,� ���w�s��ܰ�Խ�X%�l:���<9��5� ��c\��(��w��ZS2� G 0��c�=��G��_�ޔ��{���$Y�`ėj�3�H��p�!���5o�P�1�|:�Dv�Cx�6�d� Examination of Records and Documents: The records maintained by different enterprises vary considerably. Since the unit cost of inventory items will change over time, a company must select a cost flow assumption (FIFO, LIFO, average) for removing the costs from inventory and sending them to the cost of goods sold. %PDF-1.4 True False 2.
If you dispose of business property, you may have a … - Is there a proper system of receipt of goods? Existence, occurrence, and Right; valuation. - Whether the overhead absorption rates properly determined. /Filter /LZWDecode Stuck?

Whether physical verification sheets are made after checking physically. Are the duties of various persons relating to inventories rotated periodically? If there are 125 units on hand at the end of the year, the ending inventory will report the cost of 125 units. Observe the tacking of physical inventory and make test counts- as part of the process of observing the physical inventory, the auditors may see the possibilities in including absolute and damaged inventories, infrequent sales, see records of the final receipts and sales, make test count of selected inventory items. endobj

endstream The cost of goods sold will likely be the largest expense reported on the income statement. << /Type /Page /Parent 1 0 R /LastModified (D:20190524161707+00'00') /Resources 2 0 R /MediaBox [0.000000 0.000000 612.000000 792.000000] /CropBox [0.000000 0.000000 612.000000 792.000000] /BleedBox [0.000000 0.000000 612.000000 792.000000] /TrimBox [0.000000 0.000000 612.000000 792.000000] /ArtBox [0.000000 0.000000 612.000000 792.000000] /Contents 9 0 R /Rotate 0 /Group << /Type /Group /S /Transparency /CS /DeviceRGB >> /Annots [ 5 0 R ] /PZ 1 >> Cost of Goods Sold Enter the amount from line 8 on your tax return as follows. Compare quantities and prices in the invoices, purchase orders and receiving reports. cost at the time inventory is taken. Are perpetual inventory records made for each class of inventory? Perform additional tests of controls for those controls which auditors plan to consider to support their planned assessed levels of control risk i.e. Total beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory = cost of goods sold. To support the assessments of control risk, the auditors may need to obtain additional evidences of the operating effectiveness of the client’s controls by designing additional tests of controls. cost throughout the inventory and cost of goods sold cycle. - Whether there is any system for determining the cost of work in progress and finished goods. %PDF-1.2 The auditor should obtain a management representation letter from the management stating that the inventories are valued by appropriate methods, all the inventories are included, no inventory belonging to outside party are included, proper adjustments have been made for the damaged, obsolete, and/or defective materials. Filers of Form 1120-F, enter cost of goods sold on Section II, line 2. ������@3�#a ��D��B��@ �����`8����lt`4 $&1v)����A��c7�NGA`��n1��0�P4l1 %Phq[+F�(��2(eJ-Hh.�)�� �k_��fu� 6�6�X�4�`m[��j��l�<0Պ��@�� ��w+�1�ޭ6:tdcQ�H!�:���kÑ`p n^'�+��r.��M��0ʣ��Dj�z��`4�mB���p:NB��D �R�5?�ԃ��0�n�c��Fy��e �c|b�\��Á��Z1� �*uPr��������n��+ֹ��Hd�7sB��a�0klů��@9�F��ê��,��C�Hb�< �T�q��-�4`]���à�4�%@�h�4sF�� Z@��Hb�� �6�$ʔ�����f��i��2�à�9 #(�#p�cx�:x���m{'��hd@�XZ)���3Ƈ%�ph�q�f#��x�;�cx�20��#��"2��1��P���:qR�W�� (a)  Examine significant aspects of a sample of purchase transactions such as: (b) Test the accounting systems such as cost accounting systems for direct materials, direct labors, manufacturing overhead costs ie as to whether the systems accumulates actual or standard cost according to process, job, or other costing systems. 6. COGS include direct material and direct labor expenses that go into the production of each good or service that is sold. To Find Cost of goods sold Solution: Under the periodic inventory system, a physical inventory must be taken to determine cost of goods sold. h�bbd``b`a'��= "Āc���@�U|\� �e ��{��ޫ0g�s=H�C�rx7H�R�� BD��!� ��$8A��&�,�.HG �`=�> �%L��� u��&�Q�@� ��� The lower of cost … endobj Inventory turnover(CGS/Average inventory). <> endobj (4) Reassess control risk for the financial statements assertions about inventories and cost of goods sold and modify substantive tests based on information about weakness and strength of the control systems. Example of Cost of Goods Sold. The understanding of internal control enables auditors to be familiar with   procedures for: - Purchasing                           - controlling productions, - Receiving                             - Cost accounting systems, - Storing                                 -  Perpetual inventory systems, - Issuing goods                       - Other related matters, Questions that may be asked by auditors in consideration of control over inventory and cost of goods sold may include (for perpetual inventory systems). *d�n�����;M�"���an�� 3�ƒ+��{.����/–bb0\h$�e

Obtain an understanding of internal control over inventories and cost of goods sold. The accounting profession sanctions numerous alternatives methods for valuation of inventories, and different methods may be used for various classes of inventories. 396 0 obj <> endobj Audit of Inventories and Cost of Goods Sold. )SI�{ 0�B�O�|cE�s}O�q��""��TV�}c��`���◾��u�-�h����Sòw��i�8J�"����,� Trace postings from vouchers register to general ledgers and to any applicable subsidiary ledgers.

What is the system for stock taking, continuous, annual, or both.
Obtain an understanding of internal control over inventories and cost of goods sold. - Whether there is any proper documentation for issues inventories. Examine the purchase acquisitions or other authorizations for each purchase transactions in the sample, Examine related vendors invoices, receiving reports and paid checks for each purchase orders in the supplies. The examination of the inventory records provides only corroborative evidence to the auditor. Inspects vender’s invoices for approval of prices, freight, credits terms and    accounts distributions and recomputed extensions and footings. The following are the general aspects of internal control relating to inventories. Cost of goods sold (COGS) includes all of the costs and expenses directly related to the production of goods. The objective of major substantive testing procedures of inventories and cost of goods sold balances are given in the following table. Cost of goods sold is the difference between costs of goods available for sale and ending, With the perpetual inventory system, the inventory account is updated after each sale or, Under the periodic inventory system, a physical inventory must be taken to determine cost of, Under a perpetual inventory system, each time goods are purchased, the inventory account is, A company using a periodic inventory system must total the selling prices of the units on hand at. Inventories have received much attention in both the accounting and auditing literature, as well as in the discussions among professional accountants due to the following reasons. verify whether the basis and methods for inventory pricing and costing are  in accordance with GAAP Investigation of inventory valuations may involve questions such as, 11. test the pricing method applied to raw materials, purchased parts, supplies, WIP-inventories finished goods and other inventory items. Audit Program For inventories and cost of goods sold. Inventories often constitutes a large current assets of an enterprise and very susceptible to major errors and fraud. The auditor’s examination of the records relating to the inventories depends upon the nature of records maintained by the organization under audit. cost figures used in arriving at balance sheet and income statement amounts are supported by internal records. Assess control risk and design additional tests of controls for inventories and cots of goods sold, Based upon their understanding, auditors determine the planned assessed level of control risk for various financial statement assertions. Dispositions of Business Property.


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