Substantive Procedures

Procedures test inventory and cost of goods sold balances, using analytical methods (e.g., turnover ratios) and detailed tests (e.g., physical counts).

Analytical Procedures

Trends in inventory turnover, days’ sales, and gross margins predict misstatements, flagging slow-moving or obsolete items.

Substantive Evidence in Management Reports

Sales forecasts, inventory reports, and production plans provide evidence for planning, valuation, and costing assertions.

Physical Inventory Observation

Auditors observe client counts, making test counts to verify existence and completeness, following detailed instructions (e.g., tag control, cutoff procedures).