Inventory Observation Memo
INVENTORY OBSERVATION MEMO
1. Before commencement of verification, the management should issue appropriate instructions to stock taking personnel. Such instruction should cover all phases of physical verification and preferably be in writing Auditor should examine these instructions to assess their efficacy
In the given Case; Manager, Andrew Jacobs issue said instructions to count team. But, while issuing instructions, no consideration was made to: • Stock held by company but related to other parties, like goods to be returned to the supplier but not yet done, Goods sold but delivery not yet taken by customer. • Stock in Transit • Stock in Process • Stock with customers, in case of sales return or in case of sales on the sale or approval basis. • Stock of obsolete items and scrap. However, other issued instructions had been followed by count team. {Annexure I: Copy of these Instructions}
2. The procedures for identifying defective, damaged, obsolete, excess and slow moving items of inventory should be well designed and must operate properly. There should be appropriate policies regarding these. Write offs of either excess, scrap or obsolete stocks should be valid and authorized. As working capital blocked in Slow moving Goods lead to loss in interest and defective, damage and obsolete items also lead to financial loss to company.
In the given case, it had been observed that Company does not have any appropriate policies regarding these. Many instances of slow moving goods were identified. Also, there were some cases where slow moving goods were purchased; in spite of the fact that, such goods were already in stock in large quantities. {Annexure II and Annexure III}
Company does not have any policies regarding identification and disposal of obsolete goods. Some pallets of obsolete shoes were found near the back of the warehouse, with no written records. Such
1. Before commencement of verification, the management should issue appropriate instructions to stock taking personnel. Such instruction should cover all phases of physical verification and preferably be in writing Auditor should examine these instructions to assess their efficacy
In the given Case; Manager, Andrew Jacobs issue said instructions to count team. But, while issuing instructions, no consideration was made to: • Stock held by company but related to other parties, like goods to be returned to the supplier but not yet done, Goods sold but delivery not yet taken by customer. • Stock in Transit • Stock in Process • Stock with customers, in case of sales return or in case of sales on the sale or approval basis. • Stock of obsolete items and scrap. However, other issued instructions had been followed by count team. {Annexure I: Copy of these Instructions}
2. The procedures for identifying defective, damaged, obsolete, excess and slow moving items of inventory should be well designed and must operate properly. There should be appropriate policies regarding these. Write offs of either excess, scrap or obsolete stocks should be valid and authorized. As working capital blocked in Slow moving Goods lead to loss in interest and defective, damage and obsolete items also lead to financial loss to company.
In the given case, it had been observed that Company does not have any appropriate policies regarding these. Many instances of slow moving goods were identified. Also, there were some cases where slow moving goods were purchased; in spite of the fact that, such goods were already in stock in large quantities. {Annexure II and Annexure III}
Company does not have any policies regarding identification and disposal of obsolete goods. Some pallets of obsolete shoes were found near the back of the warehouse, with no written records. Such