December 28, 2021

In the field of building construction, a contract may sometime extend over two or more years. When that happens, it is necessary to value the work-in-progress at the end of each year. In such a case, it would obviously be incorrect to value the work-in-progress at cost and postpone determination of profit to the year […]

Where some of the goods are in bond, it is usual to have separate stock sheets for them. The particulars of stock entered on them should be examined by reference to bond warrants. If the same are pledged with some bank, a certificate should be obtained from the bank. The bonded goods should be valued

The auditor should ensure that any goods sent to customers on approval which were unsold at the close of the year have not been treated as sold and are shown in the account as Stock on Approval and are valued at lower of the cost or market value. In case they are reported to have

Where a separate account in respect of each consignment is not being maintained and only memoranda accounts in respect of goods sent on consignment are kept, the auditor should make sure that stocks sent out on consignment but unsold have been included in the closing stock; when a separate account in respect of each consignment

1. Clause 4(ii)(a) requires the auditor to comment whether the management has conducted physical verification of inventory at reasonable intervals. According to Accounting Standard (AS) 2, “Valuation of Inventories”: “Inventories are assets: held for sale in the ordinary course of business;  in the process of production for such sale; or  in the form of materials

The auditor may involve a technical expert in verification of work-in-progress if necessary. He may advise his client that where possible the work-in-progress should be reduced to the minimum before the closing date, particularly of items the production of which have been abandoned and for items the manufacture of which is not being actively undertaken

In addition to the audit procedures discussed above, the following analytical review procedures may often be helpful as a means of obtaining audit evidence regarding the various assertions relating to inventories : reconciliation of quantities of opening stocks, purchases, production, sales and closing stocks;  comparison of closing stock quantities and amounts with those of the

The auditor’s objective concerning valuation is to obtain evidence that the amount at which inventories have been valued is computed on an appropriate basis. The auditor should satisfy himself that the valuation of inventories is in accordance with the normally accepted accounting principles and is on the same basis as in the preceding year. The

Where significant stocks of the entity are held by third parties, the auditor should examine that the third parties are not such with whom it is not proper that the stocks of the entity are held. The auditor should also directly obtain from the third parties written confirmation of the stocks held. Arrangements should be

Physical verification of inventories is the responsibility of the management of the entity. However, where the inventories are material and the auditor is placing reliance upon the physical count by the management, it may be appropriate for the auditor to attend the stock-taking. The extent of auditor’s attendance at stock-taking would depend upon his assessment

The responsibility for properly determining the quantity and value of inventories rests with the management of the entity. It is therefore the responsibility of the management of the entity to ensure that the inventories included in the financial information are physically in existence and represent all inventories owned by the entity. The management satisfies this

Stock-in-Trade The valuation of stock is frequently the main factor in determining the result shown by the accounts. Apart from the effect on the Balance Sheet, incorrect treatment of stock would affect the profits of the year that has closed as well as that of the next following. The valuation of the closing stock, therefore,