By now you have probably completed your financial statement audit for another fiscal year end. Hopefully, it went well for you and your accounting staff, however, many times companies do not have adequate accounting procedures or internal controls in place or they do not have adequate accounting staff. As a result, the financial statement audit does not go smoothly and there are significant auditor adjustments.
If this has been an issue in your company there are likely to be several different areas where procedures can be implemented to help improve the accounting system which in turn will facilitate a smoother audit process. One of these areas for most companies is inventory.
Here are a number of accounting procedures that can be instituted to improve your accounting system’s inventory control functions:
- Make sure you have adequate controls so that inventory that is received or used is recorded in your inventory management system correctly. You should have a review process to spot check the data input.
- Don’t wait for year end to do inventory counts. At specific times throughout the year, you should do periodic cycle test counts to ensure that the system is being maintained accurately.
- Adequate controls over inventory pricing are a must so that accurate acquisition cost is updated in the system to reflect your inventory method. Again, you should have a review process in place to spot check the data input on a regular basis.
- Periodically you should review the inventory management system to determine if you have dated or obsolescent items carried in inventory. If so, you must determine if the inventory items should be completely written off, devalued or a reserve established on the accounting records.
- As you approach year end make sure that you have adequate cutoff accounting procedures in place to ensure that both the shipping of goods to customers and the receiving of goods from vendors are reported in the proper period.
By using the items above you will have established better control over inventory which in turn will provide you with more accurate financial statements during the year and improve your audited financial statement experience in the coming year.
If you have any questions or need help, please call us at 714-569-1000.
