Inventory Auditing Part 2
Channel: Accounting Instruction, Help, & How To
Date: 2023-12-14

📚 Understanding Inventory Management and Auditing Processes
Join me as we dissect the relationship between Inventory Management and the auditing of purchasing processes. We discuss how to efficiently plan audit information, delve into documentation, and identify key components in the inventory management process.

🔍 Key Components of Inventory Documentation

Production Schedule: Planning inventory based on production needs.
Receiving Report: Recording goods received from vendors.
Materials Requisition: Internal form tracking material movement during production.
Inventory Master File: Detailed info on business inventory, including perpetual records.
Cost Variance Report: Comparing actual costs to standard or budgeted costs.
Inventory Status Report: Types and amounts of products on hand.
Shipping Order: Documenting goods removal from perpetual inventory records.
💡 Primary Functions of Inventory

Inventory Management: Authorizing production and maintaining appropriate inventory levels.
Raw Materials Stores: Custody and issuance of raw materials to manufacturing.
Manufacturing: Production of goods.
Finished Goods Storage: Custody and issuance of finished goods to the shipping department.
Cost Accounting: Maintaining manufacturing costs and inventory records.
General Ledger: Accumulating, classifying, and summarizing inventory and related costs.
🛡️ Segregation of Duties for Strong Internal Controls

Separate Inventory Management from Cost Accounting: Prevents manipulation of production and inventory costs.
Separate Inventory Stores from Cost Accounting: Avoids unauthorized shipments and concealing theft.
Separate Cost Accounting from General Ledger: Minimizes concealing unauthorized shipments, reducing the risk of theft and overstatement of inventory.
Supervise Physical Inventory Separately: Reduces the chance of covering up shortages through record adjustments, preventing overstatement.
🤝 Segregation of Duties Table

Function Inventory Management Raw Materials Stores Finished Goods Storage Cost Accounting I.T
Production Schedules ✅ ❌ ❌ ❌ ❌
Materials Requisition ❌ ✅ ❌ ❌ ❌
Update Cost Records ❌ ❌ ❌ ✅ ❌
Update Inventory Records ❌ ❌ ❌ ✅ ❌
Release Goods to Shipping ❌ ❌ ✅ ❌ ❌
Approve Purchase Requisition ✅ ❌ ❌ ❌ ❌
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