Auditing Control of Inventory, Warehouse and Payroll
The inventory of a company forms the most essential parts of its current assets. If the company records its inventory as an asset, it should undergo an annual audit. The procedure of the inventory audit depends on the size of the inventory and the policies of the company. However, before the auditing process, the inventory valuation must be done (Turner, Weickgenannt & Copeland, 2016). Some standard inventory audit procedures include the cutoff analysis where the auditors have to halt the warehouse activities for a physical inventory count. However, the extraneous inventories are not valued, but the last received and shipped inventories are considered. The second stage is the observation of the actual physical count to ascertain the accuracy in the amounts recorded in the company’s counters (Turner, Weickgenannt & Copeland, 2016). After the physical count, the inventory is reconciled with the general ledger values to verify the balances. The test of high-value items to ensure they have the correct values.
The auditors should be certain that the error-prone items are also correctly counted and recorded. The risks involved in the auditing of the inventory are the goods that are on transit and have not reached the warehouse. To ensure correct values recorded, the auditors should know where goods were purchased and the costs of purchases (Marks, 2009). This will help the auditors to compare the amounts in the recent invoices with those value listed in the inventory valuations. Besides, when auditing, the auditor should review the freight charges by tracing the selection of freight invoices. The auditor should also carry out a valuation of the costs of the finished goods. However, the auditors should also be certain that the direct labour costs are included in the costs of the inventory (Marks, 2009). These are contained in the payroll records. If the company has a considerable amount of work-in-progress, the auditor should also test how the company determines the percentage of completion for the items whose production are still in progress. Finally, the auditor should determine the inventory allowances based on the values of the obsolete or expired inventory and determine the inventory ownership for all the goods in the warehouse.
The purpose of effective internal control compliance ensures that the inventory of the company is protected from any form of wastage, fraud or theft. This is because the auditors will verify the costs of work-in-progress, the freight costs, the ownership of the inventory and the direct labour costs in the payroll (Iovu, 2018). The company can segregate the duties of the employees, or by assigning each employee specific duties to maximize productivity and avoid wastage. Effective internal auditing ensures that the procedures used are compliant with the policies of the companies, the federal laws and the GAAP. This leads to keeping of reliable and accurately done inventory records. Such essential records include purchase orders of inventory, invoices, and receiving reports (Iovu, 2018). Audit control and compliance also evaluate the performance of the company personnel, thereby promoting efficiency in the operations of the company. Internal control also ensures reliable and accurate operating data and auditing reports.
References
Iovu, C. (2018). The role and key objectives of the company’s internal audit process.
Marks, N. (2009). Beyond continuous auditing: internal auditors can provide continuous risk and control assurance to the board and management by taking real-time audit technologies to the next level. Internal Auditor, 66(6), 51-56.
Turner, L., Weickgenannt, A. B., & Copeland, M. K. (2016). Accounting information systems: the processes and controls. John Wiley & Sons.