Disclosures about inventories - ias 2, Auditing

Disclosures about Inventories - IAS 2

IAS 2 specifies disclosures about inventories.

In a large manufacturing company, no article in the balance sheet appears verification problems to auditors for the extent such stocks do. The causes for this simply are:

a) The amounts included are material;

b) Stock has a one for one impact on the reported advantages.  In other words an increase of stock by one shilling increases the reported advantages through one shilling. Therefore it opens itself simply to distortion through the management;

c) Stock does not derive from the general double entry system, it is mostly a figure arrived at through a stock taking exercise held at the end of the year, priced and incorporated in the loss and profit account and balance sheet, any variations to be written off to price of sales.

d) Stocks are portable and valuable opening themselves to pilferage and deterioration either intentional or accidental.

e) The number of items involved is usually numerous creating verification problems as far as existence and condition is concerned.

f) Although stocks are valued at the lower of cost and net realizable value, what constitutes cost can vary from one management to another and the basis of determining that cost can be subject to so many different methods all resulting in different values for the same items.

g) It is an area that is susceptible to manipulation by management as apart from problems of arriving at cost, the provision for damaged, slow moving and obsolescence stocks is a question of judgment hence it is simple for the management and the auditor or disagrees.

h) Stock is merely not one item but many different items, an example; finished goods, spares, goods in transit, work in progress, raw materials, consumables etc.  Each this can be priced on a different basis and described and amalgamated as stocks.

Posted Date: 1/25/2013 2:57:40 AM | Location : United States

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