Analytical Review Procedures

In addition to the audit procedures discussed above, the following analytical review procedures may often be helpful as a means of obtaining audit evidence regarding the various assertions relating to inventories :

1. reconciliation of quantities of opening stocks, purchases, production, sales and closing stocks;
2.  comparison of closing stock quantities and amounts with those of the previous year;
3.  comparison of the relationship of current year stock quantities and amounts with the current year sales and purchases, with the corresponding figures for the previous year;
4.  comparison of the composition of the closing stock (for example raw materials as a percentage of total stocks, work-in-process as a percentage of total stocks) with the corresponding figures for the previous year;
5.  comparison of current year gross profit ratio for the previous year;
6. comparison of actual stock, purchase and sales figures with the corresponding budgeted figures, if available;
7.  comparison of yield with the corresponding figure for the previous year;
8.  comparison of significant ratios relating to inventories with the similar ratios for other firms in the same industry, if available;
9.  comparison of significant ratios relating to inventories with the industry norms if available. It may be clarified that the foregoing is only an illustrative list of analytical review procedures which an auditor may employ in carrying out audit of inventories. The exact nature of analytical review procedures to be applied in a specific situation is a matter of professional judgment of the auditor.