A very important aspect of the audit of the financial statements by an external auditor is the observation of the physical stocktaking.Required:How does the auditor satisfy himself that the procedure adopted by the management with regard to stocks have been applied throughout the financial period?

In an attempt to satisfy himself that the management procedures as regards stocks have been properly applied throughout the period, the auditor will carry out tests of control which include:-

ii. Observe physical security of stocks and environment in which they are held.
iii. Test procedures for recording of stock movements in and out of stock.
iv. Test authorization for adjustments to stock records.
v. Test authorization for write off or scrapping of stocks
vi. Test controls over recording of stock movements i.e. the use made of authorized goods received and dispatch notes.
vii. Inspect reconciliation of stock counts to stock records.
viii. Check sequences of dispatch notes and goods received notes for completeness.



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