An external public auditor reviews inventory to confirm that the quantities and values listed on the financial statements are accurate. Inventory is often one of the largest assets, so any error in counts or costing affects the credibility of the entire report.
That is why our work centers on the controls, procedures, and documentation behind each number. When the count process is consistent, supported, and easy to trace, we gain the assurance needed to move forward with the rest of the audit.
Why Inventory Accuracy Matters In An External Audit
Inventory is presented as a major asset on the financial statement. From an external audit point of view, we want to make sure what is shown there is real and accurately presented. That means the quantity and the cost both need to stand up to testing.
As external auditors, we also watch for overstatement. We look at the quantity, the price, and the cost of that inventory and test whether those amounts tie back to a controlled count of inventoried items. When they do, we gain confidence in the reports your business presents.
Key Takeaway: Treat inventory like the important asset it is and back it up with a count process that is easy to follow, controlled, and well-documented.
How An External Public Auditor Reviews Inventory Counts
Observing The Physical Inventory Count
During a physical inventory count, we stay in the perimeter while the work happens. Our role is to see that the count is carried out in a controlled manner so the numbers that result are accurate.
We watch how items are counted, how teams move through the space, and how results are written down or scanned. This helps us decide if the process supports complete and accurate quantities that can go on the financial statements.
Using Monarch Quantity Data As A Starting Point
Monarch’s business focuses on the quantity side of inventory. We use the data that Monarch provides as a starting point for our own work. From that starting point, we perform sample counts in different areas to see whether the recorded quantities match what is actually present.
Pro Tip: Align your internal count steps with the Monarch reports you rely on so every test sample can be traced cleanly from record to floor and back again.
Need an expert external public auditor to support your next inventory count? Contact Monarch Inventory Services for a free consultation.
Types Of Inventory We Count And Test
Healthcare And Retail Inventory To Be Audited
The inventory we review can be raw material items in a healthcare setting. We make sure medications and similar items that appear in the financial statement are counted in a way that is appropriate, complete, and accurate.
On the retail side, we look at products that are on the shelves. From a retail standpoint, an auditor has to make sure that what is available in terms of raw materials and products matches what is recorded and that it has been counted the right way.
Items In Process And Finished Goods
There are also products that are in process. We need to see that these in-process items are represented and counted in a way that fits their stage. In addition, the finished good must be counted and shown on the financial statements as a finished good when it is ready.
Key Takeaway: Raw materials, items in process, and finished goods all matter. Each group must be counted and presented correctly, not only the easy items on the front shelf.
Sampling Methods And How They Support The Overall Audit
In all these cases, as external auditors, we sample count each inventory area. Using the data that Monarch provides as a starting point, we perform:
- Sample counts in each section of inventory
- Book-to-floor counts
- Floor to book counts
- Random sample counts across items and locations
These tools help us decide whether we are comfortable with the quantity of inventory that a client is representing on the financial statements. When those samples support the recorded amounts, we can move forward with the rest of the audit work.
The external public auditor then uses that inventory work as one component of the overall audit process and test plan. Inventory is a critical element in the overall goal of conducting the external audit.
When you partner with Monarch Inventory Services for inventory count support and give your external auditor reliable quantity data, you help create financial statements that are more accurate, more complete, and easier for every stakeholder to trust.
