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Procedures

7.5 Perpetual / continuous inventory counts

The objective of an inventory count is the same irrespective of whether the company
performs an annual count or perpetual counts: To identify whether the client's
inventory system reliably records, measures and reports inventory balances.

Where the client uses a continuous counting system, lines of inventory are counted
periodically throughout the year so that by the end of the year all lines have been
counted.

Where the client uses a perpetual system the auditor should:

 Attend at least one count to ensure that adequate controls are applied during
the counts (in the same way as for a year-end count).

 Inspect the number and value of adjustments made as a result of the count. If
significant adjustments are required each month, this would indicate that the
system figures for inventory cannot be relied on at the year-end and a full count
will be required.

If the system balance for inventory is deemed reliable as a result of these
procedures, further procedures to verify cut-off, valuation and rights will still be
required:

 Inspect GRNs and GDNs around the year-end to confirm correct cut-off.

 Inspect post year-end sales invoices to verify NRV.

 Compare inventory days with prior year to identify any old or obsolete inventory.

 Inspect purchase invoices for the name of the client to confirm rights and
obligations.

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