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I. Audit of Inventories of Retail and E-Commerce

The document outlines audit procedures for inventory and revenue for retail and e-commerce companies. For inventory, the audit objectives are to ensure accuracy between physical counts and records, assess the counting system, and verify ownership. Procedures include testing controls, participating in physical counts, examining ownership documents, and analyzing inventory levels. For revenue, the objectives are to ensure completeness, evaluate internal controls, and confirm proper period recognition. Revenue procedures consist of testing for unrecorded sales, cutoff testing between periods, and substantive testing of pricing and sales documentation.

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Rhea Joy Orcio
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38 views

I. Audit of Inventories of Retail and E-Commerce

The document outlines audit procedures for inventory and revenue for retail and e-commerce companies. For inventory, the audit objectives are to ensure accuracy between physical counts and records, assess the counting system, and verify ownership. Procedures include testing controls, participating in physical counts, examining ownership documents, and analyzing inventory levels. For revenue, the objectives are to ensure completeness, evaluate internal controls, and confirm proper period recognition. Revenue procedures consist of testing for unrecorded sales, cutoff testing between periods, and substantive testing of pricing and sales documentation.

Uploaded by

Rhea Joy Orcio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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I.

AUDIT OF INVENTORIES OF RETAIL AND E-COMMERCE

AUDIT OBJECTIVES

• To guarantee accuracy between real stock amount and financial records, a physical count

should be performed.

• Determine whether or not the inventory counting system is accurate.

• To establish whether the corporation genuinely owns the inventory it has registered.

• Verify that inventory is reported in the general ledger at the proper value. The auditor

examines whether or not damaged and low-quality commodities are documented at a

realizable value.

AUDIT PROCEDURES

• Test of Controls

✓ The auditor should check to see if the inventory shown in the corporate balance statement

are actual.

✓ Inventory value is extremely significant, especially for slow-moving and high-tech items.

In addition, the auditor should check to see if the inventory is correctly priced.

✓ The auditor should also look into who owns the inventories that are recorded in the

financial statements and stored in the warehouse of the organization.

✓ The auditor should double-check that the volume and value of inventory are appropriately

calculated in the financial statements.

✓ The auditor should double-check that the inventory records have been correctly cut off.

✓ The auditor may wish to check if inventory purchased and sold throughout the year were

really purchased and sold.


✓ Auditors may also check to see if inventories are properly recorded in both the list and the

financial statements. They may also check to see if the company has the authority to handle

the inventory.

• Substantive Procedures

✓ If the auditor decides to evaluate the entity's inventory, one of the financial statements

assertions that the auditor must check is their existence. One of the approaches used by

auditors to corroborate this allegation is physical verification. The auditor may decide to

participate in or undertake the sampling of a client's year-end inventory count.

✓ Normally, the auditor examines the entity's ownership (Right and Obligation) over the

inventory by looking at the Contracts, Quotations, Invoices, and Delivery Noted. The

contract's terms and conditions are crucial for determining ownership.

✓ The auditor will determine if the inventories are valued according to the IFRS standard.

Inventory should be valued at the lowest possible cost and net realizable value.

✓ The auditor should conduct an analytical assessment of inventories to detect any irrational

events or transactions involving inventories, such as slow-moving inventories, unjustified

low and high inventories, and irrational adjustments.

II. AUDIT OF REVENUE OF RETAIL AND E-COMMERCE

AUDIT OBJECTIVES

• The major goals of a revenue audit are to ensure that income is comprehensive, that internal

controls are efficient, that compliance is high, and that revenue is recognized on time. For

the revenue audit, the auditor should conduct appropriate control and substantive testing.

AUDIT PROCEDURES
• Test of Controls

✓ Because there is a chance that the recorded income did not exist, the auditor should

determine if the money was truly recorded.

✓ The auditor should ensure that the revenue balance shown on the income statement contains

all revenue transactions that occurred during the period to ensure that the revenue is

complete.

✓ The assertion of rights and duties is connected to risks and benefits. The auditor must assess

the entity's rights and duties in relation to the items sold or services provided to consumers.

✓ The auditor should check to see if revenues are accurately recorded throughout the

accounting period.

✓ The auditor should check that correct revenue disclosures are included in the financial

statements' notes.

• Substantive Procedures

✓ The auditor should first obtain the client's price, credit, payment conditions, and acceptance

of sales returns procedures. Additionally, the auditors should investigate the sales incidence

by acquiring sales transactions that are reflected in the financial statements and sales report.

✓ Auditors should verify the quotation, sales order, invoices, and products delivery note for

a sample of sales transactions. They should do sales revenue analysis in order to discover

unexpected sales occurrences or transactions.

✓ Cut-off tests should be performed by auditors to ensure that sales transactions are recorded

in the correct accounting period. Due to the convoluted sales procedure, there is a potential

that sales income will be recognized in the incorrect accounting period. To guarantee the
right accounting period, the auditor should choose a sample of invoices, examine the

invoice date, trace the date to the goods dispatch note, and trace the date to the sales record.

✓ They should do a revenue journal entry test to see whether there are any duplicate journal

entries. They will also evaluate and compare the selected invoices to the price list to ensure

that the pricing charges are proper and in accordance with the authorized price list.

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