List and explain the substantive tets of Cash and 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

Substantive tests It is the procedures by which evidence is gathered by auditors. It is inclusive of…

Answered: List and explain the substantive tets…

Business

Accounting

List and explain the substantive tets of Cash and 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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Question

List and explain the substantive tets of Cash and 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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