Kế toán, kiểm toán - Chapter 09: Production cycle learning objectives

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 09 Production CycleLearning ObjectivesDescribe the production cycle, including typical source documents and controls.Give examples of tests of controls for auditing the controls over conversion of materials and labor in a production process.Identify and describe considerations involved in the observation of physical inventory and tests of inventory pricing and compilation.Describe some common errors and frauds in the accounting for production costs and related cost of goods sold, and design some audit and design some audit and investigation procedures for detecting these errors and frauds.9-2Importance of InventoryMajor component of current assets on the balance sheet.Errors effect both the balance sheets and net income.Valuation is usually very subjective.Potential obsolescenceGoods have not been sold, so marketability may be uncertain.9-3Inherent Risks in Production CycleComplexity (e.g. dollar value LIFO)Susceptibility to theftMovement of inventoryLower-of-Cost-or-Market valuationEffects on gross profits9-4Typical ActivitiesPlanningProduction planProductionBill of materialsRequisitionsCost AccountingStandard costsOverhead allocation9-5Production Cycle: Control ConsiderationsProduction runs are authorized.Raw Materials should be counted, and inspectedAs production is undertaken, materials and labor quantities should be summarized.All inventory items should be accounted forUsed in productionScrapReturned to inventoryUse of TRANSFER ticketsCount/inspect the items and compare quantitiesThe cost accounting department reviewsQuantity of raw materials to materials requisitionQuantity of direct labor to time sheets and labor distribution reportCost accounting applies overhead costs to production using OVERHEAD TICKETSCost summary9-6Production Cycle: Control ProceduresPhysical ControlsProduction Order and Materials Requisition.Physical inventories reconciled to perpetual inventory records.Restrict access to inventoriesTransfer TicketsSeparation of DutiesAuthorizationRecordingCustodyReconciliationPerformance ReviewsScrap reportsVariance analysis9-7Management ReportsSales ForecastsInventory reportsItems on handOpen purchase ordersProduction plans and reports9-8Test of ControlsObserve separation of dutiesVouch costs to labor and material reportsTime ticketsReceiving reportsTransfer tickersCheck proper authorizationsExamine review of cost reportsSubstantive Procedures Observation of inventory count Tests of pricing and compilation Analytical proceduresExcessive inventory Slow moving inventory9-9Physical Inventory Observation“it will always be necessary for the auditor to make, or observe, some physical counts of the inventory and apply appropriate tests of intervening transactions" (AU 331.12).Usually make test counts at a time other than year-end. test roll-forward or roll-backReview client instructionsStop flow of goodsMake TEST COUNTSFrom INVENTORY LISTINGFrom WAREHOUSE FLOORRecord some counts in working papers9-10Client Count InstructionsNames and datesInstructions for descriptions and countsNoting obsolete or worn itemsTag control—compilation of countsShutting down productionControlling inventory movement including shipping and receivingSupervisory approvalMaking changes and corrections9-11Physical Inventory ObservationListen to instructions provided to count teamsUnderstand the use of control tags, count sheets, scanners, or RFID Be wary of "hollow squares" and "empty boxes”Tour shipping and receiving areasWatch for OBSOLETE and SLOW-MOVING inventory CONFIRM inventory on CONSIGNMENT and at other locationsConsider the use of SPECIALISTSConfirm inventory in transit.9-12Examples Challenges/ Special procedures.Lumber Problem identifying quality or grade. /Employ a specialistPiles of sugar, coal, scrap steel Geometric computations, aerial photos./ Employ a specialistItems weighed on scales Accuracy of scales./Examine certification.Bulk materials (oil, grain, liquids in storage tanks)Measuring volume, ensuring composition of content/Climb the tanks Dip measuring rods. Sample for assay or chemical analysis.Diamonds, jewelry Identification and quality determination problems/ Hire a specialist.Pulp wood Quantity measurement estimation/Examine aerial photos.Livestock Movement not controllable/Use chutes to control animals.Inventory Count and Measurement Challenges9-13Pricing and Compilation TestsValuation (Price Tests) VENDOR INVOICESCOST FLOW ASSUMPTION (FIFO, LIFO, average, specific identification)LOWER OF COST OR MARKET for inventory Check Extensions and Footings. Agree to G/LPurchase CutoffsVerify CUT-OFFs for purchases and salesExamine Receiving Reports and Vendor Sales Invoices occurring around year-end.Examine bills of lading and sales invoicesAgree to inclusion/exclusion from inventory9-14Analytic ProceduresVerify REASONABLENESS of COGSGross Profit MarginCompare to prior year, industry averagesVerify REASONABLENESS of ending inventoryDays Sales in Inventory Inventory Turnover9-15Fraud Red FlagsUncontrolled access to inventoryMany high-dollar items with market value (i.e. salable on eBay?)Unpredictable counts during inventoryLarge differences between counts and inventory records.Inventory shows signs of damage, obsolescence or excess quantities.Unusual interplant transfers during physical inventory or at year-end.Reluctance of client to move merchandise to allow inspection of additional items located behind.9-16