List and explain the substaintive tests of Cash & Inventory . Substantive test of auditing inventory1. Analytical procedureMake comparison between current inventory balance with inventory balance ofprevious year => check the change/fluctuation of inventory => Possiblyoverstate/understate inventory balance.Compare the current inventory turnovers with the last year's onesCompare the profit margin of current year with last year.Make analysis of the change/fluctuation in purchase within the a yearCompare purchase transactions of current year with last yearSuppose the company is a manufacturer, we have to compare the ratio of directmaterials, direct labour and production overhead of current year with last year.2. Test of detailsWitness of inventory+ Make the plan for witness of inventory+ Implement the witness of inventory: observation of witness, observethe status of inventory,+ Do post-witness procedureCompare beginning balance of inventoryRevaluate the value of COGS, ending inventoryCut-offCheck the allowance for declining in inventoryPresentation and disclosure: Costing method, reason of allowance fordeclining in inventory

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Description: List and explain the substaintive tests of Cash & Inventory . Substantive test of auditing inventory1. Analytical procedureMake comparison between current inventory balance with inventory balance ofprevious year => check the change/fluctuation of inv

A substantive test is the audit procedure used by the auditors of the business in order to check the…

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List and explain the substaintive tests of Cash & Inventory

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Financial Transaction Analysis

The transaction analysis is done with the help of the accounting equation. The basic accounting equation is alternatively known as the balance sheet equation is based on the double-entry system which says that for each transaction happening in a business, at least two accounts should be affected I.e. both the debit side and the credit side should be equal. The Accounting Equation is

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List and explain the substaintive tests of Cash & Inventory .

Substantive test of auditing inventory
1. Analytical procedure
Make comparison between current inventory balance with inventory balance of
previous year => check the change/fluctuation of inventory => Possibly
overstate/understate inventory balance.
Compare the current inventory turnovers with the last year's ones
Compare the profit margin of current year with last year.
Make analysis of the change/fluctuation in purchase within the a year
Compare purchase transactions of current year with last year
Suppose the company is a manufacturer, we have to compare the ratio of direct
materials, direct labour and production overhead of current year with last year.
2. Test of details
Witness of inventory
+ Make the plan for witness of inventory
+ Implement the witness of inventory: observation of witness, observe
the status of inventory,
+ Do post-witness procedure
Compare beginning balance of inventory
Revaluate the value of COGS, ending inventory
Cut-off
Check the allowance for declining in inventory
Presentation and disclosure: Costing method, reason of allowance for
declining in inventory

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