A physical inventory count and comparing it to accounting records is a very important control activity and helps the auditor assess control risk.
Two common counting approaches:
1. Complete inventory count
Operations mostly stop; everything counted at one time.
2. Cycle count
Counts selected items during the year; all items counted at least once per year.
For both methods:
- Physical count is reconciled to perpetual inventory records (if maintained).
- Pricing and summarisation are based on the reconciled amount.
Electronic counting methods (e.g., barcode/scanner) may be used to support counting efficiency and accuracy.
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