Section Inventories - ASRE 2410 - Review of an Interim Financial Report Performed by the Independent Auditor of the Entity - April 2006 - Inventories

(a) the total agrees with the balance in the trial balance; and

(b) the list is based on a physical count of inventory.

Enquire about the method for counting inventory.
Where a physical count was not carried out on the balance sheet date, enquire whether:

(a) a perpetual inventory system is used and whether periodic comparisons are made with actual quantities on hand; and

(b) an integrated cost system is used and whether it has produced reliable information in the past.

Discuss adjustments made resulting from the last physical inventory count.
Enquire about procedures applied to control cut-off and any inventory movements.
Enquire about the basis used in valuing each inventory classification and, in particular, regarding the elimination of inter-branch profits. Enquire whether inventory is valued at the lower of cost and net realisable value (or lower of cost and replacement cost for not-for-profit organisations).
Consider the consistency with which inventory valuation methods have been applied, including factors such as material, labour and overhead.
Compare amounts of major inventory categories with those of prior periods and with those anticipated for the current period. Enquire about major fluctuations and differences.
Compare inventory turnover with that in previous periods.
Enquire about the method used for identifying slow moving and obsolete inventory and whether such inventory has been accounted for at net realisable value.
Enquire whether any inventory has been consigned to the entity and, if so, whether adjustments have been made to exclude such goods from inventory.
Enquire whether any inventory is pledged, stored at other locations or on consignment to others and consider whether such transactions have been accounted for appropriately.

InventoriesInventories