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1、Chapter 12:Auditing stocks and tangible fixed assetsRecapuC ostuA uthorisationuV aluationuE xistenceuB eneficialuO wnershipuP resentation Learning objectivesuIdentify the audit objectives applicable to stocksuExplain the nature of stock recordsuDescribe procedures to be followed at a physical stockt
2、akeuDiscuss considerations relevant to determining the audit strategy for stocksuDescribe procedures to be followed when observing physical stocktakeuExplain the audit procedures for verifying stock pricing uIdentify the audit objectives applicable to tangible fixed assetsuDiscuss considerations rel
3、evant to determining the audit strategy for tangible fixed assetsuDesign a substantive audit programme for tangible fixed assetsLearning objectives(continued)StockuManufacturing Transactions 3 stages:-Raw materials awaiting processing-Work in progress-Finished goods awaiting saleSTOCK-AUDIT OBJECTIV
4、ESSTOCK RECORDSuGoods in/out/transituPerpetual stock recordsusually maintained by manufacturing entities;other entities may rely on physical countrange from quantity only records through to fully integrated quantity and cost recordsuFunctionsrecording goods into stockrecording goods from stockrecord
5、ing transferscomparison of book to physicalDifferencesphysical to stock recordsuTheftuDamageuObsolescenceuFail to record inuFail to record outuThird partyuTransfer/QuarantineSTOCK-AUDIT STRATEGYuMateriality and inherent risksHigh volume of transactionsContentious accounting issues including determin
6、ation of cost and valueDiverse nature poses problems in determining quantities and reliance on expertsStorage at multiple sites poses risk of theft,damage and of accounting for goods in transitVulnerable to fall in valueAudit StrategyuControl risklow where reliable fully integrated perpetual stock r
7、ecords are keptmedium where reliable but non-integrated perpetual records are kepthigh where no or unreliable perpetual records are keptuAudit strategydepends on nature and reliability of stock recordsfor manufacturing entities,the availability of reliable cost records is essential in determining co
8、stStockcountThe auditor is not to count and value stock,but to ensure that stock is taken and valued properly by clients staff.Includes reviewing stocktaking instructions put into place by management,observation of the stockcount,and carry out a sample of random physical stock counts.Stockcount(ISA5
9、01)“When inventory is material to the financial statements,the auditor should obtain sufficient appropriate audit evidence regarding its existence and condition by attendance at physical inventory counting unless impracticable.”This allows the auditor to“observe compliance with the operation of mana
10、gements procedures”and to“provide evidence as to the reliability of managements procedures.”STOCKTAKEuStock count proceduresassigning responsibilitypreparationidentificationcountingcheckingrecordingclearingcut-offuComparison with recordsrecount material differencesinvestigate causemaintain cumulativ
11、e record of differencesadjust recordsReview Stocktaking Arrangements supervision uwhich staff are involved umakeup and training of teams ucontrol over stock sheets-sequentially numbered uteams sign sheets to acknowledge performance.OBSERVATION OF STOCKTAKEuEvaluate entity plansuObserve counttest com
12、pliance with plansmake test countsidentify damaged etc.itemsaccount for use of count sheets etc.record cut-offAttendance at Stocktakeobserve procedures are instructions carried out dual function of auditor is there adequate supervision is stock divided into areas is stock marked when counted to avoi
13、d omission or double-counting is damaged or old stock highlighted on stock sheets are all stock sheets accounted for.Stock CountuFollow-up counttest clerical accuracy of final stock listtrace test counts to listtest final list to and from count recordscompare counts with physical stock if anytest cu
14、t-offverify movement between date of count and period endSTOCK PRICINGuWith suppliers invoices for purchased stockuWith costing records for manufactured stockpropriety of cost systemcontrol effectiveness of cost recordsuAssess need for write-down to net realisable valueStock PricinguCost of raw mate
15、rials per invoiceuDirect labour costsuFor WIP-material,labour and overheaduFor FG-material,labour and overhead,but need to evaluate lower of cost and NRVReview Stock Valuation Methodis cost accurately identified on stock records or invoiceshow are overheads evaluated for inclusion in Cost figuresis
16、valuation method consistently applied(e.g.FIFO)treatment and valuation of damaged or old stock perform some sample calculationsObserve sales after balance sheet date to confirm valuation.Substantive Procedures for stockuDesigning procedures for stockInitial procedures-Trace opening balances-Review a
17、ctivityAnalytical procedures-Industry experienceSubstantive Procedures for stockuTests of details of transactionsTesting entries in stock recordsTesting cut-off of purchase,manufacturing and sales transactionsSubstantive Procedures for stockuTests of Details of BalancesObserve physical stock countTe
18、st clerical accuracy of stock listingsTest stock pricing-Materials,labour,overheads-Cost vs net realisable value-Use of expertsStock ProvisionuPolicy/procedureuCompleteness,accuracy,validity,existenceuDisclosureuRisk re manipulation to adjust profitsLONG TERM PROJECTSuExamples-motorways,bridgesuReco
19、gnition of revenueuRecognition of profit notional profit v realised profituRules-stage of completion,future costs,recognition of lossTangible Fixed AssetsuLand and buildinguPlant and machineryuFixtures and fittingsuMotor vehiclesIntangible Fixed AssetsGoodwillBrandsTrademarksFIXED ASSETS-AUDIT OBJEC
20、TIVESTransaction classExistence or occurrenceurecorded additions and disposals occurredCompletenessuall additions and disposals are recordedRights and obligationsuadditions and disposals effectively transfer rightsAccount balanceurecorded fixed assets represents productive assets in useuall applicab
21、le assets used in operations are includeduthe entity owns or has rights to applicable recorded assetsTransaction classValuationuadditions and disposals are correctly recordedDisclosureurecorded details of additions and disposals support their classification and presentationAccount balanceufixed asse
22、ts are correctly stated at cost or valuation less depreciationudisclosures are adequate as to cost or valuation,depreciation methods and other requirementsProperty,Plant&EquipmentuDeveloping the audit planMaterialityInherent riskAudit strategyPlant registerFIXED ASSETS-AUDIT STRATEGYuMateriality and
23、 inherent riskoften the largest category of assetsnot normally vulnerable to theftvaluation and measurement problems-self constructed assets-assets held under finance leasesFIXED ASSETS-AUDIT STRATEGYuControl risk and audit strategytransactions often few,large and subject to special authorisation-pr
24、edominantly substantive approach often used in such cases-lower assessed level of control risk approach used for expenditures processed as routine purchases-plant register may be used to assist substantive procedures but rarely assessed for controlSubstantive Procedures for Property,Plant&Equipmentu
25、Initial proceduresOpening balancesuAnalytical proceduresComparisons uTests of details of transactionsAdditions/DisposalsRepairs and maintenanceSubstantive Procedures for Property,Plant&EquipmentuTests of details of balancesExamining title documents&contractsReviewing provisions for depreciationConsi
26、dering the possibility of impairmentInquiring into the valuationuDisclosureContentious IssuesuRevaluationuChange in depreciationuMaintain so do not depreciateuAmortisation of intangiblesuValuation of brand and trademarksSummaryuStock and tangible fixed assets are the major assets in many financial s
27、tatementsuPrimary IRs are misstatements in the existence and valuation assertionsuMain concern is overstatementu9、静夜四无、静夜四无邻，荒居旧，荒居旧业贫。3月月-233月月-23Tuesday,March 14,2023u10、雨中黄叶、雨中黄叶树，灯下白，灯下白头人。人。01:13:2001:13:2001:133/14/2023 1:13:20 AMu11、以我独沈久，愧君相、以我独沈久，愧君相见频。3月月-2301:13:2001:13Mar-2314-Mar-23u12、
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