Source: Handout of Audit Orientation from HKICPA
Assets verification– Three important elemetns
Ownership: Place / Location of the stock (Other than held by third party) Existence: Physical count – In good condition and quantity Valuation: Purchase invoice – unit cost and subsequent sale to verify the NRV
Stock take issue
1. Before stocktaking –
Review last year working paper (if any) and discuss with management a. any high value item
b. location of stock
c. cut-off issue
d. any stock held by third party
e. any significant change of the above with last year
2. During stocktaking –
Observe the client’s internal control system
a. actual work done of the client are follow with agreed procedure b. observe stock take carried by client whether they follow the instruction c. follow up cut off, instruction being followed and compared stock count with list d. check the high value items and identify any obsolete stock during the count e. completeness of the stock count list with pre-number count sheet is carried by client
3. After stocktaking – Follow up
a. Check the cut-off with details of the last numbers of stock movement forms and goods inwards / outwards after the year end. b. Check final stock sheets for pricing, extension, casting, summarizing and signature. c. Third party certificate etc and obsolete stock provision.
Physical stock count - Checklist (Cont’d)
A. Cut off Procedure
Why cut off is important in stock take, purchase and sale testing?
How to carry out the cut-off of stock, purchase and sales so that The sales and purchase transactions are complete and correct in the proper accounting period?
B. Sale and Purchase
Sale / Purchase invoice would be select for testing by cross check to ledger to ascertain the completeness of sale. On the other hand, by selecting sale / purchase entry in ledger and cross check to invoice could verify the...