As part of an operational audit, an auditor compared records of current inventory with usage during the prior two-year period and determined that the spare parts inventory was excessive. What step should the auditor perform first?
As part of an operational audit, an auditor compared records of current inventory with usage during the prior two-year period and determined that the spare parts inventory was excessive. What step should the auditor perform first?
The first step an auditor should take is to determine whether a clear policy exists for setting inventory limits. This provides a benchmark to assess whether the current inventory levels are justified or if they indeed are excessive. Establishing that a policy exists and understanding its guidelines allows the auditor to measure the current practice against the organization's standards, which is essential before considering other aspects such as the effects of inventory levels on profitability, approval processes, or record accuracy.
Setting criteria first