Physical Inventory Observation Checklist Name of Company Subsidiary or Division Location or Department Date(s) of Inventory akin!

Date(s) of Observation Internal "udit Dept #epresentative(s) eam in char!e of inventory

The purposes of the physical inventory observation are to determine that (1) the fixed assets actually exists, (2) the methods of inventory taking are effective in ensuring accurate counts, and (3) the fixed assets are in a usable and functioning condition in the normal course of business (e.g. not damaged or idle).

Instructions
This checklist covers information obtained and audit techni ues usually employed during a physical inspection observation, including tests of perpetual assets records. The checklist is not an exhaustive list of considerations for all observations. !t should be supplemented by additional procedures "henever appropriate. Some $uestions may be inappropriate for some observations% &uestions that do not apply should be desi!nated N'" (not applicable)% " (no( ans)er should be e*plained in an attachment referenced to the related $uestion% # checklist is prepared by each !# representative responsible for a location or department and is completed before leaving the inventory location.

+eneral Description of ,i*ed "ssets (indicate those that apply)

ypes of Inventory

$uildings % uipments, plant, machinery, installations &easurement, control and ad'ustment devices &otor vehicles (urniture, office e uipment, protection e uipment of human and material values and other tangible assets Special Cate!ories of "ssets (if (yes-( obtain particulars for audit follo).up)/
0es No

On.site ..

#ssets billed not shipped #ssets received not billed #ssets o"ned by others )onsignments in #ssets in transit to customers #ssets in transit from vendors #ssets held by others )onsignments out

Off.site ..

Special Classes of Inventory/ *on+functioning, idle + lack of production plan ,*1*on+functioning + damaged ,*3.roposed to be disposed ,)/iscuss "ith client personnel and detail particulars for any classes listed above0

,i*ed assets Instructions

1. a. b. c. 2. 1btain the follo"ing0 *ames of persons drafting and approving instructions. /ates and times of inventory taking. *ames of persons responsible for supervising inventory taking. 2ere ade uate "ritten instructions prepared covering each phase of the physical inventory procedures3 (describe deficiencies noted, if any. ) )onsider the follo"ing in evaluating their ade uacy0 .rovisions for control of receiving and shipping during inventory taking period and, if site 4 location is not shut do"n, provisions for handling assets movements (e.g. containers, barrels, stackers or other ,movableassets). !nstructions for recording description of items. !nstructions for identifying damaged, non+functioning, idle items. !nstructions for use of item tags or count sheets (including their distribution, collection, and control). .lans for determining items at outside locations. !nstructions for revie" and approval of item counts by department heads or other supervisory personnel.

a.

c. d. e. f. g.

Physical Inventory Procedures

0es 3. 6. 7. /id the )ompany5s personnel follo" the inventory instructions3 2ere inventory items arranged in an orderly manner prior to the inventory to facilitate the counting3 2ere different types, special categories, and special classes of inventory properly segregated to facilitate proper inclusion4exclusion from the physical count3 No N'"

Items Countin! Procedures

0es 8. 9. a. b. :. ;. 1<. a. b. 11. 2ere inventory cre"s ade uately supervised3 2ere inventory cre"s assigned to count items for "hich they normally are responsible3 !f not, "ere the cre"s familiar "ith the inventory4items3 /id the counters proceed in a systematic and orderly manner3 2ill someone subse uently compare counts to the perpetual records and investigate differences3 2ere counts checked or inventory items recounted by persons other than those making original counts3 2ere they denied reference to the original counts3 2ere all uantities determined by actual physical counts3 (!f not, describe method used for estimating uantities.) No 1 N'"

12.

!f part of the items "as precounted4prechecked , "ere subse uent transfers indicated on the tags, or effectively controlled by other procedures3

# >no> ans"er should be explained in an attachment referenced to the related uestion. 3

13.

2ere prenumbered items tags or count sheets used and accounted for3 !f not, immediately contact the team manager to determine ho" tag or count sheet control "ill be obtained.

Cutoff Procedures
0es 16. 17. /id client procedures include accumulation of cut+off information3 2as production suspended during inventory taking3 (!f not, describe the procedures used to control the movement of assets.) No 1 N'"

18.

2ere transfers operations suspended during the inventory taking3 (!f not, describe procedures employed to assure an accurate cut+off.)

19. 1:.

2ere the items in the shipping and receiving area(s) properly segregated bet"een items to be inventoried and those not to be inventoried3 !f the )ompany has more than one inventory location, describe the procedures to account for inter+site transfers during the inventory period.

Obsolescence and Safe!uardin!

0es 1;. 2ere damaged, idle, non+functioning items designated on the tags4count sheets3 $riefly describe the )ompany5s procedures for identifying these items. (?ee attached). 2ere any deficiencies noted in the )ompany5s physical safeguards over inventory items3 $riefly describe any deficiencies. (?ee attached). No 1 N'"

2<.

est Count Procedures

0es 21. 22. 23. a. b. c. 26. 2ere counting and recording procedures actually observed3 2ere some independent test counts made and listed in the "orking papers3 2ere errors located as a result of test counts3 !f numerous errors "ere noted, did the )ompany5s personnel recount the area(s) involved3 /id "e subse uently revie" the area(s) recounted for final clearance3 2ere tests made to assure proper recording of items description, the state of the assets3 $riefly describe. No N'"

27.

2as a revie" made to ascertain that all items had been tagged or other"ise accounted for3 ($riefly describe our procedures if the )ompany did not use tags.)

28.
=

!f inventory count sheets "ere used, have "e selected some of our test counts from the floor and some from the count sheets3 6

# >no> ans"er should be explained in an attachment referenced to the related uestion.

29.

!f all or part of our observation represents a test of )ompany5s perpetual records, briefly describe the procedures and controls that assure the accuracy and completeness of these records and complete the follo"ing0

a. b. c. 2:.

@ave "e selected some of our test counts from the floor and some from the perpetual records3 2ere all of our test counts reconciled to the perpetual records3 !f not, is there sufficient information in our "orking papers to enable this to be done at a later date3 @as the cut+off information listed herein been traced to proper recording in the perpetual records3 @as our observation covered all items for "hich this location is responsible3 (!f not, comment on items held at outside locations and estimated amounts thereof, including consignments).

2;.

3<. 31.

/escribe our procedures to assure that inventory items are not added subse uent to our observation procedures (e.g., obtain a list of the inventory tag numbers used, obtain a copy of the inventory count sheets, or list the number of line items on each count sheet). @ave "e idle, damaged and other non+functioning items "ith the )ompany5s employees3 @ave "e listed all significant items idle, damaged and non+functioning noted during our observation (including name(s) or employee(s) "ith "hom the items "ere discussed)3

Other
32. 33. !ndicate "ays in "hich company procedures for future physical inventories might be improved. (?ee attached). !ndicate ho" !# internal procedures might be made more efficient regarding future physical inventories. (?ee attached).

Conclusion Statement
$ased on the results of my observations, tests, and in uiries, ! am satisfied that the )ompany5s methods of inventory+taking are effective and that "e can rely on the )ompany5s representations about the uantities and physical condition of the inventories, except as follo"s.

?igned

Cut.off Data
2endor or Customer Name #eceipts: Date #eference No% or Description 3 4as 5aterial 6een Included in the Inventory7 8 "mount of Invoice (if available) ransaction for +oods #ecorded in Proper Period79

Shipments:

3 8

/escribe reference source. (or receipts, attempt to locate the material listed herein and ascertain that it has been properly tagged (or properly segregated if it is not to be inventoried) in order to ans"er this uestion. Aour ans"er should not be based solely on the dates of receipt as sho"n by receiving reports. (or shipments, examine shipping documents, e.g., bills of lading. ?ubse uent to the inventory observation, obtain the vendor5s invoice (receipts) or copy of the )ompany5s invoice (shipments) and trace the documents to the )ompany5s records in order to ans"er this uestion. 2hen prenumbered receiving or shipping tickets are used, note the last number and any unused prior numbers. 2hen prenumbered tickets are not used, obtain information about several shipments and receipts immediately prior to the inventory date. Trucks on premises and freight cars on sidings, containing either in+bound materials or out+bound products, should be listed, sho"ing number of truck or car, "hether full or empty, and "hether or not contents are included in inventory.

a! or Sheet Control

Individual(s) or "rea(s)3 Issued ;sed ;nused

a! or Sheet Numbers8 2oided <*planation9

3 8 9

Bist individual(s) or area(s) for "hich tags or sheets "ere issued. !ndicate the range of numbers applicable for each category. The numbers indicated for used, unused, and voided should account for all those indicated as issued. .rovide explanation for any tags or sheets unaccounted for or any information presented re uiring further explanation.