For several years, a client's physical inventory count has been lower than what was shown on the books at the time of the count so that downward adjustments to the inventory account were required. Contributing to the inventory problem could be weaknesses in internal control that led to the failure to adjust the accounting records for some:

The audit of the inventory and warehousing cycle can be broken down into five activities: - Acquiring and recording raw materials, labor, and overhead - Internally transferring assets and costs - Shipping goods and recording revenue and costs - Physically observing inventory - Pricing and compiling inventory  The audit of the inventory and warehousing cycle can be divided into five activities within the cycle: Acquire and record raw materials, labor, and overhead. Internally transfer assets and costs. Ship goods and record revenue and costs. Physically observe inventory. Price and... Show more

The audit of the inventory and warehousing cycle can be broken down into five activities:
- Acquiring and recording raw materials, labor, and overhead
- Internally transferring assets and costs
- Shipping goods and recording revenue and costs
- Physically observing inventory
- Pricing and compiling inventory 

The audit of the inventory and warehousing cycle can be divided into five activities within the cycle: Acquire and record raw materials, labor, and overhead. Internally transfer assets and costs. Ship goods and record revenue and costs. Physically observe inventory. Price and compile inventory.

Here are some tips for conducting an inventory audit:
Planning: Create an audit schedule, prepare documents and data, and assess and prepare your inventory.
Execution: Select audit procedures, choose who's auditing, and conduct the physical count.
Analysis: Reconcile records that don't match the physical count, record audit results, and compare findings with previous audits.
Analytical procedures: Consider the client's industry and business, the inventory valuation method, and the potential for inventory obsolescence. 

Here are some steps for conducting a warehouse audit:
Determine what you are auditing
Observe relevant warehouse operations
Interview key staff members
Evaluate results
Develop and implement adjustments for improvement
Repeat regularly 

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