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The company has the following general ledger accounts that are classified in the inventory caption
of the balance sheet.
General
Ledger Description or Brief Purpose Cost Method Relative
Number of the Account Used Size
¯¯ Intercompany profit.
Intercompany Profit
C Determine if the inventory amount includes any significant
intercompany profit. Determine the amount of such profit for
elimination, if appropriate.
¯¯ Cycle counts
¯ Practitioners may refer to PPC’s Guide to Fraud Investigations
for more extensive fraud detection procedures if it is suspected that
the financial statements are materially misstated due to fraud.
* 10. Consider whether procedures performed are adequate to
respond to identified fraud risk factors. If fraud risk factors or other
conditions are identified that require an additional audit response,
consider those risk factors or conditions and the auditor’s response
in connection with the performance of Step 11 in AP-1b.
Practical Consideration:
Cycle Counts
A If the client performs cycle counts, perform the following
additional procedures:
a. Trace test counts made by the auditor to the client’s
perpetual records.
b. Examine the client’s schedule of cycle counts for the period
under audit to determine that counts of substantially all inventory
items were made.
c. Review worksheets, entries in the perpetual inventory
records, and other evidence of the regularity of cycle counts and
evaluate the results.
Practical Consideration: