Audit of the Inventory

(Production) Cycle *

Chapter 20

*Inventory & Warehousing Cycle

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 Nature

• Inventory (Production) cycle berhubungan dgn konversi

bahan baku menjadi barang jadi (manufacturing)
• Transaksi dimulai pada saat adanya permintaan bahan baku
untuk produksi, dan berakhir dengan transfer hasil produksi
ke barang jadi (manufacturing transactions)`
• Berhubungan dengan siklus transaksi lain :
• acquisition & payment (expenditures),
• payroll & personnel,
• sales & collection (revenue).

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 Flow of Inventory and Costs

Raw Materials Work in Process Finished Goods

Beg. Inv Raw mat Beg.Inv
used
C.G.Manuf CGS
Purchases
End. Inv
End. Inv

Manufacturing CGS
Manufacturing
Direct Labor Overhead
Actual Applied Actual Applied

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 Functions in the Inventory Cycle

Process
Functions purchase Receive raw Store
orders materials raw A
materials

Purchase Receiving
requisition report Perpetual
Related inventory
documents master file
Purchase Vendor’s
order invoice

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 Functions in the Inventory Cycle

Process Ship
Store
Functions A the materials finished finished
goods goods

Material Shipping
requisition document

Related Production Perpetual inventory

sheet master file
documents

Cost accounting records

©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 20 - 5
 Parts of Audit of Inventory
Parts of audit Cycle in which tested
Acquire and record raw Acquisition and payment plus
materials, labor, & overhead. payroll and personnel

Internally transfer Inventory cycle (tests of

assets and costs. cost accounting controls)

Ship goods and record Sales and

revenue and costs. collection

Physically observe
inventory. Inventory cycle

Price and compile

inventory. Inventory cycle

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 Materiality

• For manufacturers & retailers, inventory is material &

the audit of inventory is critical to reaching an opinion
on the overall fair presentation in the financial
statements.
• Generally the audit of inventory is costly, therefore, the
auditor will normally allocate a significant amount of
performance materiality to the audit of inventory.

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 Inherent Risk

• The volume of purchases, manufacturing, & sales

transactions that affects these accounts is generally high,
increasing the opportunities for misstatements to occur.
• The wide diversity of inventory items sometimes requires
the use of special procedures to determine inventory
quantities (physical existence).
• There are often contentious issues surrounding the
identification, measurement, & allocation of inventoriable
costs such as indirect materials, labor, & overhead, joint
product costs, accounting for scrap and other cost
accounting issues (valuation-accounting standards).

©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 20 - 8
 Inherent Risk

• Inventories are often stored at multiple sites, adding to the

difficulties associated with maintaining physical controls over
theft & damages, and properly accounting for goods in transit
between sites (existence, valuation, rights)
• The wide diversity of inventory items may present special
problems in determining their quality & fair value (valuation).
• Inventories are vulnerable to spoilage, obsolescence, and
other factors such as economic conditions that may affect
demand & salability, and thus the proper valuation of the
inventories (valuation-impairment).
• Inventory may be sold subject to right to return & repurchase
agreements.
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 Cost Accounting Controls

1. Physical Controls

Raw materials WIP Finished goods

2. Controls over the related costs

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 Controls over the related costs

• Penentuan & Pencatatan Biaya Produksi (Cost Accounting)

• Pembebanan biaya bahan, upah, & overhead ke barang
dalam proses
• Transfer biaya antar departemen
• Tansfer total biaya produksi ke barang jadi

• Controls :
• Chart of accounts,
• Standard costing,
• Cost variance analysis,
• Independent checks

©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 20 - 11
 Methodology for Designing
Controls and Substantive Tests
Understand internal control –
cost accounting system.
Design TOC and STOT for
Assess planned control risk – the cost accounting system
cost accounting system. to meet transaction-related
audit objectives.

Determine extent of Audit procedures

testing controls.
Sample size
Items to select
Timing

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 Tests of Cost Accounting Controls

Physical Controls
• Inspection & inquiry
• Periksa keamanan tempat penyimpanan persediaan dari
kemungkinan pencurian, penyalahgunaan, salah identifikasi

Documents and records for transferring inventory

• Documentation
• Review sekuens pemakaian dokumen material requisitions
• Periksa approval material requisitions
• Bandingkan kuantitas, descriptions, & tanggal dengan informasi
pada perpetual inventory records
• Bandingkan catatan produksi dengan perpetual inventory records

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 Tests of Cost Accounting Controls

Perpetual Inventory Records

• Periksa dokumen pendukung entries pada akun2 inventory
(test for accuracy)
• Material acquisitions – audit of acquisition & payment cycle
• Direct labor – audit of payroll cycle
• Overhead – audit of acuisition & payment and payroll cycles
• Finished goods (credit) – audit of revenue cycle

Unit Cost Records

• Evaluasi kelayakan alokasi biaya
• Periksa akurasi perhitungan & klasifikasi

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 Analytical Procedures
Analytical Procedure Possible Misstatement
Compare gross margin percentage Over/understatement of inventory &
with that of previous years cost of good sold
Compare inventory turnover with Obsolete inventory
previous years Over/understatement of inventory
Compare unit costs of inventory Over/understatement unit costs
with those of previous years
Compare extended inventory value Misstatements in compilations, unit
with that of previous years cost or extensions
Compare current year manuf. costs Misstatement of unit costs especially
with those of previous years direct labor and manuf. overhead

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 Tests of Details of Inventory Balance

Inventory Balance = Quantity x Price

Audit Procedures
1. Observation of Physical Counts
2. Inventory Pricing Test
3. Compilation Tests

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 Tests of Details of Inventory Balance

Auditor harus memperoleh bukti yang cukup dan tepat

tentang
1. Eksistensi dan kondisi persediaan :
 Menghadiri penghitungan fisik persediaan (observasi)
 Melaksanakan prosedur untuk menentukan kesesuaian
catatan persediaan dengan hasil penghitungan fisik

2. Kewajaran penyajian nilai persediaan di laporan

keuangan
 Pricing tests
 The lower of cost or net realizable value
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 Physical Inventory Observation

Balance-Related Audit Objectives:

Inventory as recorded
Existence
on tags exist.
Existing inventory is
Completeness
counted and tagged.
The client has rights to
Right
inventory recorded on tags.
Obsolete & unusable inventory
Realizable Value
items are excluded or noted.

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 Physical Inventory Observation

Balance-Related Audit Objectives:

Transactions are recorded

Cutoff in the proper period.
Inventory is counted
Accuracy
accurately.
Inventory is classified
Classification
correctly on the tags.

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 Physical Inventory Observation

• Penghitungan persediaan (inventory taking) merupakan

bagian dari internal control yang harus dilaksanakan oleh
perusahaan secara periodik/sekali dalam satu tahun.
• Auditor harus menghadiri penghitungan yang dilakukan
klien guna memperoleh keyakinan mengenai
- efektivitas metode penghitungan (test of control)
- keandalan kuantitas, dan
- kondisi fisik persediaan yang dihitung.

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 Physical Inventory Observation

• Selama penghitungan, auditor melakukan observasi,

pengujian, permintaan keterangan
• Saat dan Luas Pengujian.
• Periodic system : kuantitas persediaan ditentukan
berdasarkan penghitungan fisik yang lazimnya
dilakukan pada tanggal laporan.
• Perpetual : jika internal control efektif, penghitungan
dapat dilakukan dalam periode interim & sampling.

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 Internal Control for Inventory Taking

Perencanaan Penghitungan Persediaan

Manual prosedur (SOP) yg memuat al:
• Tim & supervisi
• Tanggal penghitungan
• Lokasi persediaan yang akan dihitung
• Prosedur rinci tentang bagaimana penghitungan harus
dilakukan
• Penggunaan & pengendalian inventory tags dan ikhtisar
hasil penghitungan
• Prosedur penerimaan, pengiriman, & pergerakan persediaan
selama penghitungan

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 Physical Inventory Observation

Sebelum penghitungan:
• Dapatkan manual prosedur (SOP) penghitungan
• Pelajari manual, diskusikan dengan klien bila terdapat
kelemahan2 yang mengarah pada ketidak akuratan hasil
penghitungan
• Identifikasi & inspeksi lokasi2 persediaan yang akan dihitung
• Diskusikan dengan klien mengenai karakteristik persediaan,
keusangan, kemungkinan adanya barang konsinyasi atau
persediaan di pihak ketiga.

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 Physical Inventory Observation

Pada saat penghitungan:

• Pastikan semua aktivitas yg berkaitan dgn persediaan
dihentikan
• Pastikan semua persediaan yg akan dihitung telah diberi
tag/kartu penghitungan
• Catat nomor dokumen penerimaan & pengiriman barang
yang terakhir digunakan sebelum penghitungan (cut-off).
• Amati apakah penghitungan fisik dilakukan sesuai dengan
prosedur yang seharusnya (compliance - test of control).
• Inspeksi kondisi persediaan yang dihitung dari kemungkinan
rusak atau obsolete/usang
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 20 - 24
 Physical Inventory Observation

Pada saat penghitungan:

• Lakukan pengujian dengan menghitung kembali sample
persediaan & dokumentasikan dalam kertas kerja audit.
• Dapatkan ikhtisar hasil penghitungan dan bandingkan
dengan catatan perpetual dan daftar persediaan akhir

©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 20 - 25
 Physical Inventory Observation

Pertimbangan
 Metode Physical/Periodic
• Kuantitas persediaan ditentukan melalui penghitungan fisik
pada atau mendekati tanggal neraca
• Auditor harus hadir pada saat penghitungan fisik :
• mengobservasi prosedur penghitungan,
• menginspeksi persediaan
• melakukan pengujian,

©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 20 - 26
 Physical Inventory Observation

Pertimbangan
 Metode Perpetual
• Mutasi persediaan diikuti dalam catatan & dicek secara
periodik melalui penghitungan fisik secara parsial
• Auditor dapat melakukan observasi selama atau setelah
periode yang diaudit (parsial atau seluruh)

 Sistem/IT
• Auditor harus meyakini keandalan sistem (test of control)

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 Physical Inventory Observation

Pertimbangan
 Penghitungan bukan pada tanggal laporan :
• Melakukan tambahan prosedur untuk memperoleh bukti
tentang apakah perubahan persediaan diantara tanggal
penghitungan dan tanggal laporan telah dicatat dengan
semestinya

 Auditor tidak dapat menghadiri penghitungan :

• Melakukan observasi pada tanggal alternatif
• Melaksanakan prosedur audit terhadap transaksi yang
terjadi dalam periode diantara dua tanggal tersebut

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 Physical Inventory Observation

Pertimbangan
 Persediaan disimpan di pihak ketiga
• Konfirmasi
• Menguji prosedur pengendalian yang diterapkan
perusahaan terhadap persediaan di gudang pihak ketiga
• Menilai prosedur pengawasan oleh operator gudang
untuk memperoleh keyakinan bahwa informasi dari
operator gudang dapat diandalkan

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 Inventory Pricing Test

Pengujian untuk memperoleh bukti yang cukup & tepat

tentang penentuan nilai persediaan
• PSAK 14 Persediaan.
• Prosedur pengujian purchased inventory cost (barang
dagangan, bahan baku, suplies etc.) :
• tentukan ketepatan dasar & metode penilaian yang
digunakan
• tentukan konsistensi penerapan metode penilaian
• test unit cost ke invoice pembelian
• test the lower of cost or net realizable value
• impairment test
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 20 - 30
 Inventory Pricing Test

• Prosedur pengujian cost of produced inventory :

• Review alokasi bahan baku, upah, & overhead kepada
barang dalam proses dan barang jadi.
• Test the lower of cost or net realizable value (PSAK 14)
• Impairment test

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 Compilation Test

Meliputi pengujian2 terhadap keakuratan penjumlahan

dan perkalian daftar persediaan, dan kecocokan total
persediaan menurut daftar persediaan dengan ledgernya

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 Interrelationship of Various Audit Tests
Figure 20 - 4

Tests of acquisition
and payment cycle

Raw materials Work in process

Acquisitions of Other manufacturing
raw materials overhead

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 Interrelationship of Various Audit Tests

Tests of payroll
and personnel cycle

Work in process Work in process

Direct labor Indirect labor

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 Interrelationship of Various Audit Tests

Inventory tests

Raw materials Work in process

Ending inventory Ending inventory

Finished goods
Ending inventory
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 Interrelationship of Various Audit Tests

Tests of sales and

collection cycle

Finished goods
Cost of goods sold

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 Integration of the Tests

 Acquisition and Payment Cycle

 Payroll and Personnel Cycle
 Sales and Collection Cycle
 Cost Accounting
 Physical Inventory, Pricing, and Compilation

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 End

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