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Chapter 8 3 4

Illustrations and further practice

Now try TYU 3 in Chapter 8

7.4 Specific matters

Inventory held by third parties

 Obtain external confirmation from the third party of the quantity and condition of
the goods to confirm rights and valuation.

 Attend the inventory count to verify existence of the inventory if material.

 Obtain a report from the third party’s auditors confirming the reliability of the
internal controls at the third party.

Standard costs

 Obtain the breakdown of the standard cost calculation and agree a sample of
costs to invoices.

 Enquire of management the basis for the standard costs and how often they are
updated to reflect current costs.

 Inspect the variance account and assess the level of variance for
reasonableness. Discuss with management any significant variances arising.

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