– List and explain the substantive tests of Inventory and give example. Transcribed Image Text: Substantive test of auditing inventory 1. Analytical procedure Make comparison

– List and explain the substantive tests of Inventory and give example. Transcribed Image Text: 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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