Procedures of Field Audit for Inventory Audits

Procedures of Field Audit for Inventory Audits

In an inventory audit, a visual inspection can be crucial for all companies regardless of the field of their business. The expenses for inventory may make a significant contribution to the operating expenses of a company (Also see Should You Include Cost of Goods Sold (COGS) as Expenses?). Therefore, it has to ensure that it has reported its inventories correctly. A business may suffer from a loss of a few thousand up to a few hundred thousand if it makes a mistake in recording the inventories it owns. Thus, companies may consider engaging an audit firm in Johor Bahru to perform inventory audits. By doing so, they can make sure that they are complying with a set of SOP so that they do not accrue unnecessary expenses.

Establishing the Audit

Generally, a field audit is a long and complicated procedure. Before the auditors begin performing an audit, the companies will plan the audit beforehand (Also see Introduction to Pre-audit) to make sure that they have acquired the vital information they need for the audit. When the auditors plan for the audit, they need to review the company’s current records to gain a better understanding of the inventories that the company is holding. Also, they will know if there are any additional expectations from the business owner or the management. The meeting that involves both the auditors and the company being audited is crucial if that organisation is hiring an external audit firm to conduct the inventory audits. This is because the auditors have to familiarise themselves with the internal controls that the company is using (Also see A Checklist for Ways to Assess Internal Controls).

Physical Observation

This approach is an essential procedure that the auditors will perform in most of the field audits. The purpose of conducting a field audit is to let the auditors confirm that the inventories that the company is physically owning are the same as what it has reported in the reports. Typically, the auditors need to go to the warehouse, where the company stores its inventories, and count each of them (Also see Counting and Auditing the Warehouse Inventory). The process of counting inventories involves not only counting every piece of equipment physically. The auditors will require to record that information accurately (Also see What are the Current Audit Files and Permanent Audit Files?) and confirm the physical count they have completed with a second count.

Performing the Process with a Checklist

In the process of a field audit, the auditors will have a checklist that records the items that they must assess and account for with them. This checklist acts as guidance for them through the entire audit, and this helps to make sure that they do not overlook anything. Besides the inventories that the auditors need to assess and count, the checklists will also include the procedural audits they should perform. As an instance, they may have to evaluate whether the safety procedures that the employees are implementing follow the requirement of local laws and regulations.

Review

Typically, this is the last process in a field audit. It may involve a post-audit meeting between the auditors, the management and the owners or shareholder of the company. This meeting serves to identify the alterations that the company needs to implement. Also, it helps to determine whether there are any significant discrepancies between the records of the company (Also see How Do Accountants Record Transactions?) and the results of the field audit’s counting process. In the review, the information the auditors reveal should show how the company could make improvements in its control over the inventories and its operation in the future.

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