Document ID: chunk:federal_register_of_legislation:F2023C01124:reg:17:p37
Version: federal_register_of_legislation:F2023C01124
Segment Type: reg
Provision Reference: reg 17 (pt 37/41)
Character Range: 116119–119249

the absence of side agreements, because the appropriate accounting often is influenced by such terms or agreements and basis for rebates or the period to which they relate are often poorly documented.  For example, acceptance criteria, delivery and payment terms, the absence of future or continuing vendor obligations, the right to return the product, guaranteed resale amounts, and cancellation or refund provisions often are relevant in such circumstances.

      * Enquiring of the entity's sales and marketing personnel or in‑house legal counsel regarding sales or shipments near the end of the period and their knowledge of any unusual terms or conditions associated with these transactions.

      * Being physically present at one or more locations at period end to observe goods being shipped or being readied for shipment (or returns awaiting processing) and performing other appropriate sales and inventory cut‑off procedures.

      * For those situations for which revenue transactions are electronically initiated, processed, and recorded, testing controls to determine whether they provide assurance that recorded revenue transactions occurred and are properly recorded.

Inventory Quantities

      * Examining the entity's inventory records to identify locations or items that require specific attention during or after the physical inventory count.

      * Observing inventory counts at certain locations on an unannounced basis or conducting inventory counts at all locations on the same date.

      * Conducting inventory counts at or near the end of the reporting period to minimise the risk of inappropriate manipulation during the period between the count and the end of the reporting period.

      * Performing additional procedures during the observation of the count, for example, more rigorously examining the contents of boxed items, the manner in which the goods are stacked (for example, hollow squares) or labelled, and the quality (that is, purity, grade, or concentration) of liquid substances such as perfumes or specialty chemicals.  Using the work of an expert may be helpful in this regard.

      * Comparing the quantities for the current period with prior periods by class or category of inventory, location or other criteria, or comparison of quantities counted with perpetual records.

      * Using computer‑assisted audit techniques to further test the compilation of the physical inventory counts—for example, sorting by tag number to test tag controls or by item serial number to test the possibility of item omission or duplication.

Management Estimates

      * Using an expert to develop an independent estimate for comparison to management's estimate.

      * Extending enquiries to individuals outside of management and the accounting department to corroborate management's ability and intent to carry out plans that are relevant to developing the estimate.

Specific Responses—Misstatements Due to Misappropriation of Assets

Differing circumstances would necessarily dictate different responses.  Ordinarily, the audit response to an assessed risk of material misstatement