Developing the Audit Plan (Inventory)

Risk assessment procedures flow:

1. Understand the entity to identify inherent risks
2. Understand internal controls over inventory
3. Assess risk of material misstatement
4. Design further audit procedures 

Internal controls understanding (what auditors look at):

1. Procedures for purchasing, receiving, storing, issuing goods (purchase & sales cycles)
2. Methods: observation, enquiries, inspecting documents, and performing/attending stocktake
3. Goal: determine whether quantity and value are recorded appropriately 

Risk factors that increase inherent risk (IR):

1. Multiple sites
2. Vulnerable to theft, spoilage, obsolescence 

Further audit procedures:

1. TOC: confirm controls over inventory records work effectively
2. Substantive testing (ST): obtain evidence on existence and valuation