Inventory - Why a Material Figure? ®

[Acid]

WHY IS INVENTORY A MATERIAL FIGURE FOR FINANCIAL STATEMENTS :

The reason inventory is material figure is due to its nature . Inventory for example in a manufacturing industry can consist of material figure which will affect both the income statement and statement of financial position.

This effects both the asset figure in SFP and the Profit figure in the Income statement so should be treated with caution.


Inventory can consist of diamonds or jewellery which is subject to theft and also incorrect valuation can again affect both of the financial statements. Auditor should ensure that proper cut of procedures have been applied and should work in conjuction with the independent experts in the field of valuing jewellery .

Jewellery is also very attractive and valuable and is subject to theft so auditor should ensure that the jewellery is physically present and proper inventory count has been carried out. The Internal control system in place must be very effective for the auditor to rely on the internal auditors work relating to jewellery inventory.

[Vanessa]

WHY IS INVENTORY A MATERIAL FIGURE FOR FINANCIAL STATEMENTS :

The reason inventory is material figure is due to its nature . Inventory for example in a manufacturing industry can consist of material figure which will affect both the income statement and statement of financial position.

This effects both the asset figure in SFP and the Profit figure in the Income statement so should be treated with caution.


Inventory can consist of diamonds or jewellery which is subject to theft and also incorrect valuation can again affect both of the financial statements. Auditor should ensure that proper cut of procedures have been applied and should work in conjuction with the independent experts in the field of valuing jewellery .

Jewellery is also very attractive and valuable and is subject to theft so auditor should ensure that the jewellery is physically present and proper inventory count has been carried out. The Internal control system in place must be very effective for the auditor to rely on the internal auditors work relating to jewellery inventory.




Hi,

I agree with what you say. However I would like to add that only few businesses have diamonds and jewelery as inventory.

Further, whatever be the nature of business, the risk of theft of inventory always exists.

However, whatever the business of th entity, inventory (in totality) forms a significant portion of the financial statements (i.e. the SOFP and SOCI), so inventory is material figure in the financial statements.