Observation of Physical Inventory

Observation of Physical Inventory

Inventory Observation Issues

Control Risks

The internal control of the business can have a looming effect as far as the evaluation of the inventory and its control is concerned. Hydromaint Inc can do itself a lot of favor if there is proper segregation of the inventory. There are many ways to do that. For instance, when purchasing an inventory, operations department is looks for the requisitions for the purchase of department (Benston & Wagenhofer, 2006). So it can be seen that segregation of the responsibilities are some of the ways Hydromaint Inc can make sure that there is some sense of control as far as taking care of the control risks are concerned.

Inherent Risks

On the other hand, as far as the inherent risks are concerned, one of the chief risks is that of theft of the inventory, for this Hydromaint Inc , the inventory is an invaluable asset and it must be made sure that that there is no theft of the much needed inventory. Another major inherent risk is that that some of the inventory procedures are really complicated and thus there is a chance that there will be wide variety of disagreements that might surface (Hung, 2000). The overall complexity in the nature of the work in progress inventory might also surface a problem for Hydromaint Inc.

Applicable Accounting Rules

The observation of the inventory is an auditing procedure that has been accepted at the level. The quantity of the inventory is being determined merely on the basis of having a physical count of the inventory and all the relevant counts are needed to be shown in the balance sheet. It is necessary for the auditor to have his presence at the time of the count. There is a need for suitable observations, and there is also a need for adequate testing and there are some other methods for the inventory evaluation that are needed to be looked at.

There is also a rule that when the records of the well kept inventory are being looked at by clients with this intent of making comparison with the physical counts, the procedures that are needed to be done can be performed even after the end of the period of beginning of the period.

Some of the today's firm has developed statistical methods as far as evaluating the quantity of the inventory. There is also this rule that allows the auditor to look at the corresponding financial statements of different time period that he has not observed initially.

Pre-Audit Steps

Observe Physical Inventory

The premises are needed to be determined to make sure that accurate count of the inventory can be made. One thing that is needed to be make sure that there is adequate place in the premises that serve as the place where inventory can be stored. Third party inventory is needed to be segregated as well. Another thing that is needed to be done is to make sure that count is carried out as per ...