i. Existence of Inventory

• Observe the inventory count to confirm that the inventory physically exists.
• Enquire of management whether any inventory is held for third parties.
• Obtain a copy of the completed inventory sheets and physically verify a sample of items listed on the sheets against the inventory present in the warehouse.
• For goods delivered on the day of the count, determine whether these goods relate to the year being audited and trace them through to the final inventory figures to ensure correct period recording.

ii. Completeness of Inventory

• For a sample of product lines, ensure they are included on the inventory sheets and that the quantity is accurately recorded.
• Perform a sequence check of the inventory sheets to verify they were all returned to the warehouse manager.
• Ask management whether there are any items of inventory held offsite that are not included in the inventory sheets.

iii. Valuation of Inventory

• For a sample of finished goods sold after the year-end, compare the sales price to the current price list to ensure they are sold above cost.
• For work-in-progress inventory, ask management how they determined the percentage completion, recalculate the costs incurred to date, and compare the estimated selling price minus costs to complete to ensure the items’ net realizable value exceeds cost.
• Review the inventory movement records to identify slow-moving lines and assess the salability of these items, and verify if management made any provision for obsolescence or damaged inventory.