ASA 501 - Existence and Valuation of Inventory - April 2006
Internal Control StructureInternal Control Structure
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Internal Control Structure
7 When obtaining an understanding of the internal control structure and making a preliminary assessment of control risk, ordinarily, the auditor considers the adequacy of authorisation, custodianship and recording functions relating to inventory (as well as internal controls relating to the determination of quantity and value of inventory for financial reporting purposes) to determine the nature, timing and extent of audit procedures.
8 In obtaining an understanding of the internal control structure, ordinarily, the auditor considers the records and internal controls existing over the receiving, storing, returning, utilisation and dispatch of inventory.
9 Records and internal controls ordinarily considered by the auditor regarding a manufacturer may include those relating to the movement of inventory through work in progress to finished goods, and the aggregation of costs through appropriate centres.