21 Stock Control

STANDARD AUDIT PROGRAMME GUIDE

SAPG Ref.: Function: Stock & Materials Handling Activity/System: Stock Control

Company: Division: Country: Site:

Audit Ref.: Date: Completed by: Reviewed by:

Control Objective(s):

(a) To ensure that adequate and appropriate stocks are held to meet the demands of sales and production; (b) To avoid overstocking; (c) To ensure that all stock movements are valid, authorised, correctly processed, accounted for, and accurately reflected in the accounts; (d) To ensure stocks are securely and appropriately stored in order prevent loss, theft, deterioration or misappropriation of stock items; (e) To ensure that stock records are accurately maintained, adequately protected from unauthorised access, and regularly verified; (f) To ensure that stock discrepancies are promptly highlighted, investigated and resolved; (g) To ensure that stock write-offs, scrap and other disposals are justified, authorised and correctly handled; (h) To ensure that stock levels are monitored in order to detect and react to replenishment requirements, obsolete and slow-moving items; (i) To ensure that all stockholdings are traceable to a known storage location; (j) To ensure that management are provided with accurate and timely information on stock levels and usage; and (k) To ensure that liaison between the stock control function and other relevant activities (i.e. sales and production) is sufficient to enable the achievement of the organisation's objectives.

© Management Audit Ltd 1994 Filename document.doc


Seq. Risk/Control Issue Current Control/Measure WPRef.

EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report

1 Key Issues

1.1 Have authorised and documented stock control policies and procedures been implemented, and how can management be sure that they are fully complied with?

1.2 How does management determine the current and future stock requirements, and how can they be sure that actual stock levels can accurately meet sales and production demands?

1.3 Are management made aware of either overstocking or stock shortages, and how are their reactions evidenced?

1.4 What measures ensure that all stock movements are valid, authorised, correctly processed, and accounted




EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report

for?

1.5 What mechanisms prevent the acceptance and processing of invalid or unauthorised stock movements?

1.6 How can management be assured that stock is securely stored?

1.7 What processes ensure that stock valuations are accurate and correctly reflected in the inventory and accounting records?

1.8 What mechanisms prevent the manipulation, distortion or falsifying of stock records?

1.9 How can management be certain that all stock adjustments, write-offs, and scrap disposals are justified, authorised and correctly processed?

1.10 How would management be




EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report

made promptly aware of slow-moving and potentially obsolete stock items?

2 Detailed Issues

2.1 Are processes in place which ensure that adequate information is provided to facilitate adequate stock planning to achieve business objectives?

2.2 Have suitably trained and experienced stock control staff and management been provided?




EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report

2.3 What prevents the overstocking of items?

2.4 How are stocks maintained at the optimum level, taking into account such factors as supplier or production lead time, etc.?

2.5 Are raw materials, items in production and finished goods discretely identified, physically tracked, and correctly reflected in the accounts?

2.6 Are management promptly alerted to low stock levels, and how is their reaction evidenced and monitored?

2.7 Are all stock movements and adjustments supported by documentation and trailed?

2.8 Are all damaged items and those returned from customers, etc. accurately identified and appropriately returned for credit?




EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report

2.9 Is it possible to verify the validity of stock sales through to the accounts receivable system?

2.10 Is it possible to verify all stock movements to the production facility and agree stock inputs to the output of finished goods?

2.11 Are stock issues of raw materials promptly actioned and the associated items moved into the production area to minimise workflow disruptions?

2.12 How can management be certain that all stock issues are authorised and accounted for?

2.13 What processes ensure that stock items are used in rotation so that items do not deteriorate?

2.14 How can management be assured that all stock deliveries (including those




EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report

made directly to production or sales locations) are identified, confirmed as correct, and duly accounted for?

2.15 How can management be certain that the appropriate accounting treatment is applied to stock items (i.e. fixed or current assets, write-off to revenue, appropriate timing, etc.)?

2.16 What measures prevent the theft or misappropriation of stock items?

2.17 Where appropriate, are all situations where stock is either stolen or damaged reported to the police, and claimed against the insurers?

2.18 How can management be sure that all stock movements are accurately reflected on the stock control/inventory records?




EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report

2.19 Are stock records adequately protected from unauthorised or false entries?

2.20 Are the stock records subject to regular verification, if so, how often and how is this evidenced?

2.21 How can management be assured that all stock items are subject to reliable verification and that the valuations contained in the published accounts are complete and accurate?

2.22 How can management be sure that the prices used to evaluate stockholdings are valid, accurate and up-to-date?

2.23 What mechanisms ensure that all stocktaking variances are accurately recorded, reported to management, investigated and resolved?

2.24 Is adequate authorisation applied and evidenced in




EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report

support of all stocktaking adjustments?

2.25 Are adequate and secure stock storage facilities provided in order to prevent deterioration of items and losses due to theft?

2.26 Can the precise storage locations of all stock items be promptly determined?

2.27 Are stock write-offs, disposals, etc. authorised at the appropriate level and how is this evidenced?

2.28 What measures ensure that the best price is obtained for stock disposals (i.e. for scrap) and are such transactions authorised and the relevant proceeds confirmed?

2.29 How is accuracy of all data input from other systems (i.e. purchasing) confirmed?

2.30 How is the accuracy of data output to other systems (i.e.




EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report

product costing, accounts receivable, etc) confirmed?

2.31 How is the accuracy and integrity of the stock system records assured, and what measures prevent unauthorised access to the stock data?

2.32 How can management be assured that management information extracted from the stock system is accurate, timely and complete?




EffectiveYes / No

ComplianceTesting

SubstantiveTesting

Weaknessto Report



SYSTEM INTERFACES FOR STOCK CONTROL

It is unlikely that any activity or system will operate in complete isolation, but will need to interact with other data and systems in order to be fully effective. At a simple level, such interaction could relate to the input of data from a source system and the generation of amended or enhanced data which can be output to the next process. For example, taking coded transactions from an accounts payable system into the general ledger as the basis for subsequently producing management accounts information.

It is often at the point of interaction between systems where controls are critical. Auditors should be satisfied that the data moving between systems is consistent, complete and accurate, in order that the subsequent processes are undertaken upon a reliable basis.

The following table aims to plot, for the subject system of this Standard Audit Programme Guide, the potential interfaces with other systems which may require audit attention. Indicators are provided to differentiate between those interfaces which act as input sources to the subject system and those which are potential output targets. The "SAPG Ref." column records the reference number of the Programme Guide which addresses the issues for the related system

System SAPG Ref.

Input Source

Output Target

System SAPG Ref.

Input Source

Output Target

Planning 0104 Warehousing & Storage 0502

Insurance 0110 Distribution/Transport/logistics 0503

Accounts Payable 0203 Planning & Production control 0601

Accounts Receivable 0204 Materials & Energy 0604

General Ledger/Management A/Cs 0205 Quality Control 0605

Fixed Assets 0206 Sales Distribution 0707

Inventories 0211 Agents (Sales) 0709

Product / Project Accounting 0212 Order Processing (Sales) 0710

Financial Information & Reporting 0214 Spare Parts and Supply 0803


Purchasing 0401


21 Stock Control

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