Efficient Tests of Balances Series—No. 15: Keys to Effective and Efficient Inventory Observations
- Test counting all individually significant items and not testing counts of numerous smaller items which are more subject to error or theft.
- Using haphazard methods for selecting sample units and not avoiding bias (counting easy-to-access items and avoiding difficult-to-count items).
- Missing the “hollow square” or empty “donut hole.” Failing to move boxes or storage devices to make sure the center of a square or circle in not empty.
- Recording inventory based on quantities written on boxes, shelves or containers without test counting their contents.
- Counting consigned or obsolete inventory without making a separate record to make sure it is excluded from inventory totals.
- Failing to determine all count sheets or tags are collected, controlled and compiled.
- Not taking corrective action immediately when counting errors are discovered. Recounts should be requested when significant errors are discovered and when count teams make numerous errors.
by Larry Perry, CPA, CPA Firm Support Services, LLC - Larry has over 40 years experience as a CPA practitioner, author of accounting and auditing manuals, author and presenter of live staff training seminars and author of webcast and self-study CPE programs. He is co-founder of CPA Firm Support Services, LLC (www.cpafirmsupport.com), an organization providing resources, training and consulting to smaller CPA firms. Larry writes a weekly blog on AccountingWEB.com focusing on small audits, reviews and compilations. He is currently developing documentation manuals and handbooks for small audits, reviews and compilations and related electronic practice aids.