Audit Notes

Audit of the Inventory and Warehousing Cycle
Chapter 21

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder

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Learning Objective 1
Describe the business functions and the related documents and records in the inventory and warehousing cycle.

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder

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Flow of Inventory and Costs
Raw Materials Beginning Raw inventory materials used Purchases Ending inventory Direct Labor Actual Applied Manufacturing Overhead Actual Applied Work-in-Process Beginning Cost of inventory goods manufactured Ending inventory Cost of goods sold

Finished Goods Beginning Cost of inventory goods sold Ending inventory

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder

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Learning Objective 2
Describe how e-commerce affects inventory management.

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder

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How E-Commerce Affects Inventory Management
The Internet enables companies to provide complete descriptions of their inventory on a real-time basis.

The use of the Internet and other e-commerce applications may lead to financial reporting risks if access to inventory databases and systems is not adequately controlled.

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder

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Learning Objective 3
Explain the five parts of the audit of the inventory and warehousing cycle.

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder

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Functions in the Cycle
Process Receive purchase raw orders materials Flow Receive of raw Inventory materials Store raw materials Put materials in storage Process the goods Put materials in production Store finished goods Put completed goods in storage Ship finished goods Ship finished goods

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder

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Audit of Inventory