Checklist for Audit of Inventories
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- By Taxmann
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- Last Updated on 18 April, 2022
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Inventories are the assets held for sale in the normal course of business or in the process of production for sale or consumption in the production of goods or services for sale or in the form of materials or supplies to be consumed in the production process or the rendering of services. An auditor is responsible for the verification of compliance with the accounting principles and other legal provisions applicable to the entity in respect of inventories. One may adopt the following checklist for audit of inventories:
1. Has the entity used the following while determining the cost of inventories?
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- Specific identification method for items that are not ordinarily interchangeable, or for goods or services produced and segregated for specific projects;
- For other inventories, FIFO or weighted average, whichever reflects the fairest possible approximation in the circumstances of the case; or
- Standard cost method or retail method (used for convenience where results approximate the actual cost)
2. Has the allocation of fixed costs to inventories been made on the basis of normal capacity?
3. Have duties and taxes that are subsequently recoverable from the taxing authorities been excluded from the cost of inventories?
4. Have all inventories been valued at the lower of cost and NRV?
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