5-29 (Assertions) In planning the audit of a client's inventory, an auditor identified the following issues that need audit attention.
1. Inventories are properly stated at the lower of cost or market.
2. Inventories included in the balance sheet are present in the warehouse on the balance sheet date.
3. Inventory quantities include all products, materials, and supplies on hand.
4. Liens on the inventories are properly disclosed in notes to the financial statements.
5. The client has legal title to the inventories.
6. The financial statements disclose the amounts of raw materials, work in progress, and finished goods.
7. Inventories include all items purchased by the company that are in transit at the balance sheet date and that have been shipped to customers on consignment.
8. Inventories received on consignment from suppliers have been excluded from inventory.
9. Quantities times prices have been properly extended on the inventory listing, the listing is properly totaled, and the total agrees with the general ledger balance for inventories.
10. Slow-moving items included in inventory have been properly identified and priced.
11. Inventories are properly classified in the balance sheet as current assets.
Identify the assertion for items 1 through 11 above.
For audits of inventory, there are normally five assertions around which audit programs are designed. They are:
Existence or occurrence
Rights and obligations
Valuation or allocation
Presentation and disclosure
The following list expands the five assertions by emphasis of the audit procedure:
a. Assertions about classes of ...
The solution first identifies and explains assertions for auditing inventory, and then applies those assertions to the problem.