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What is the purpose of attending an inventory count?

The auditor should attend inventory counts by the client for the following reasons

  • Tests of control. To ensure that the inventory count is carried out by the client entity’s employees in accordance with their instructions. Also to look for any control weaknesses in the inventory counting system
  • Substantive tests. To ensure that there is no material misstatement at the assertion level in the client’s financial statements. This means not just  checking that the inventory does exist, but also that the method of valuationis appropriate. For example if some inventory appears to the auditor to be in dilapidated condition, or if there is evidence of slow-moving items (from dates on the inventory containers) the auditor should consider whetherinventory should be valued at net realisable value (NRV) rather than cost.

Are you interested in learning more about auditing after reading this article? If so, please take a look at more content that we have already covered here in the blog!

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