According to Joanna A. van der Vant, inventory and asset management is challenging for business accountants, since both can be heavily targeted by auditors. Currently pursuing an advanced degree in accounting, Joanna A. van der Vant is an accountant for SOL Property Management in Chicago. Here, she answers some commonly asked questions about the inventory audit process.
Q: Inventory audit can be lengthy and involved. Why is it so complicated?
Joanna A. van der Vant: Quite often, inventory is one of the largest chunks of a company’s balance sheet. It can also be spread throughout an organization, making tracking much more complicated.
Q: What items fall into the ‘inventory’ category of a company’s assets?
Joanna A. van der Vant: It depends on the type of company. For retail establishments, inventory refers to the materials up for sale. For a manufacturer, inventory usually refers to raw materials. For a company with multiple workers, inventory can simply mean computers, printers, and other job-related tools.
Q: How integral is purchasing in the inventory auditing process?
Joanna A. van der Vant: A company’s purchasing procedures are often very closely examined.
Q: Is receiving equally as important?
Joanna A. van der Vant: Receiving is reviewed as well, with the auditor generally looking over all documentation at the warehouse level.
Q: Does an auditor watch the receiving process?
Joanna A. van der Vant: Viewing the receiving process and determining that receivables are recorded properly is an important part of the auditing process.
Q: Since each company is different, how does an auditor determine if a process is right for that particular company?
Joanna A. van der Vant: An important part of this is learning as much as possible about the industry. The auditor should also take into consideration the type of inventory system used and the risk that inventory the company owns could be mixed up with inventory the company has on consignment.
Q: You mentioned the auditor seeing the receiving process. Is it important for the auditor to view the rest of the process, as well?
Joanna A. van der Vant: I recommend a tour of the facility where the auditor goes through all of the phases of receiving, storage, planning, production, and the area where records are kept.
Q: Does the company have to physically count inventory each year?
Joanna A. van der Vant: While it’s not required every single year, the client should regularly hand count the entire inventory. This can help pinpoint risk.
Q: Does it matter what time of year a company counts inventory?
Joanna A. van der Vant: Many companies close the year out with a physical inventory. This is a good practice, but companies should do what works for them.
Q: You mention auditing pricing. What is an auditor looking for in this area?
Joanna A. van der Vant: An auditor should review a company’s pricing to determine correctness. Auditors may use standard cost records to compare what a company is charging.
Joanna A. van der Vant is pursuing her CPA while working in accounting for SOL Property Management. Joanna A. van der Vant is experienced in both commercial real estate and accounting. Joanna A. van der Vant has served on several boards and committees including the Commercial Real Estate Women of Chicago.