Organisation and improvement of the process of internal audit of production inventories at the enterprise

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Kyiv National University of Technologies and Design

Organisation and improvement of the process of internal audit of production inventories at the enterprise

Zinchenko Olena

Ph.D. in Economics, Associate Professor

Kutsenko Mariia

Master's student

Abstract

The purpose of the article is to study the internal audit of production inventories, and its regulatory and legal support, to determine the stages of the internal audit of production inventories and to draw up the auditor's working documents.

The research methodology is based on the use of general scientific research methods: theoretical (analysis and synthesis, induction and deduction, generalisation, classification) and empirical (description, comparison).

The scientific novelty of the study is to improve the process of internal audit of production inventories at enterprises, to determine the means to avoid violations in accounting and to optimise the management of production inventories at the enterprise.

Conclusions. Conducting an internal audit of production inventories helps to eliminate the risks of unreliable financial statements, erroneous decisionmaking and loss of assets, improve the management of production inventories, respond quickly to changes in demand, reduce costs and increase the competitiveness of the enterprise.

Keywords: internal audit, accounting, production inventories, audit plan, auditor's working documentation.

Зінченко Олена Василівна, кандидат економічних наук, доцент, Київський національний університет технологій та дизайну

Куценко Марія Олегівна, магістрант, Київський національний університет технологій та дизайну

Організація та вдосконалення процесу внутрішнього аудиту виробничих запасів на підприємстві

Анотація

Мета статті полягає в дослідженні внутрішнього аудиту виробничих запасів, його нормативно-правового забезпечення, визначенні етапів проведення внутрішнього аудиту виробничих запасів та складання робочих документів аудитора.

Методологія дослідження ґрунтується на використанні загальнонаукових методів дослідження: теоретичних (аналіз та синтез, індукції та дедукції, узагальнення, класифікація) та емпіричних (опис, порівняння).

Наукова новизна проведеного дослідження полягає в удосконаленні процесу внутрішнього аудиту виробничих запасів на підприємствах, визначенні засобів, що допомагають уникнути порушень в бухгалтерському обліку та оптимізувати управління виробничими запасами на підприємстві.

Висновки. Виробничі запаси -- це активи, які в процесі нормальної господарської діяльності утримуються підприємством для продажу, знаходяться у процесі виробництва або утримуються на складі для подальшого залучення у виробничий процес або процес надання послуг. Проведення внутрішнього аудиту виробничих запасів дозволяє усунути ризики недостовірності фінансової звітності, шахрайства, помилкового прийняття рішення, втрати активів та поліпшити управління виробничими запасами, швидко реагувати на зміни у попиті, зменшити витрати та підвищити конкурентоспроможність підприємства.

Проведення внутрішнього аудиту має відбуватися відповідно етапів затверджених підприємством. Використання плану внутрішнього аудиту виробничих запасів допомагає аудиторам скерувати свої зусилля на найважливіші аспекти обліку виробничих запасів, що дозволяє ефективно використовувати час та ресурси. У ході внутрішнього аудиту слід керуватися Міжнародними стандартами аудиту, які приділяють особливу увагу опису та оцінці ризиків на підприємстві. Обов'язковою складовою проведення достовірного аудиту є збір аудиторських доказів та їх коректне оформлення у вигляді робочої документації. Наявність ефективної системи внутрішнього аудиту в структурі суб'єкту господарювання підвищує довіру зі сторони акціонерів та інвесторів, допомагає залучити додаткові кошти.

Ключові слова: внутрішній аудит, облік, виробничі запаси, план аудиту, робоча документація аудитора.

Зинченко Елена Васильевна, кандидат экономических наук, доцент, Киевский национальный университет технологий и дизайна

Куценко Мария Олеговна, магистрант, Киевский национальный университет технологий и дизайна

Организация и совершенствование процесса внутреннего аудита производственных запасов на предприятии

Аннотация

internal audit accounting

Целью статьи является исследование внутреннего аудита производственных запасов, его нормативно-правового обеспечения, определение этапов проведения внутреннего аудита производственных запасов и составление рабочих документов аудитора.

Методология исследования основывается на использовании общенаучных методов исследования: теоретических (анализ и синтез, индукции и дедукции, обобщение, классификация) и эмпирических (описание, сравнение).

Научная новизна проведенного исследования состоит в усовершенствовании процесса внутреннего аудита производственных запасов на предприятиях, определении средств, помогающих избежать нарушений в бухгалтерском учете и оптимизировать управление производственными запасами на предприятии.

Выводы. Проведение внутреннего аудита производственных запасов позволяет устранить риски недостоверности финансовой отчетности, ошибочного принятия решения, потери активов и улучшить управление производственными запасами, быстро реагировать на изменения спроса, уменьшить затраты и повысить конкурентоспособность предприятия.

Ключевые слова: внутренний аудит, учет, производственные запасы, план аудита, рабочая документация аудитора.

Statement of the problem

Production inventories constitute a significant part of the property of business entities and are necessary for their continuous and stable operation, as well as for the expansion of their core activities. The optimal amount and rational use of production inventories improve the financial results of enterprises and contribute to increased liquidity and competitiveness in the market. That is why any business entity needs to conduct a timely and accurate internal audit of its inventory. Such an audit helps to determine how efficiently the company produces, stores and uses inventories to manufacture products or provide services; identify weaknesses in inventory management systems and develop effective internal control procedures to ensure accurate and reliable accounting; improve the accuracy and reliability of the company's financial statements, which is important for attracting investors, creditors and other stakeholders. An inventory audit helps to optimise inventory management, reduce risks and ensure compliance with standards and regulations, which is important for the stable and successful operation of the enterprise.

Analysis of recent research and publications. The study of theoretical and practical aspects of internal audit of production inventories is devoted to the works of such scholars as: F. Butynets, M. Pushkar, S. Holov, V. Zavgorodnyi, M. Kuzhelnyi, N. Koval, V. Novodvorska, H. Savytska, P. Sabluk, N. Tkachenko, І. Maksymenko, A. Maryna. Given the results of research by scientists and the lack of sufficient regulatory and legal support for internal audit at the national level, it can be concluded that the methodology of internal audit of production inventories requires further research.

Objectives

To determine the benefits of conducting an internal audit of production inventories, to study the regulatory and legal support for internal audit, to determine the sequence of internal audit of production inventories and the need to use the auditor's working documents.

Main material. Inventories are goods and materials that are held in inventory and/or used by an enterprise in the course of its operations. These may include raw materials, semi-finished products, components, packaging materials and other resources required to manufacture products or provide services.

The methodology for accounting information on inventories, their valuation and disclosure in the financial statements of enterprises is based on National Accounting Standard 9 «Inventories», approved by the order of the Ministry of Finance of Ukraine dated 20.10.1999 No. 246 (hereinafter - the «Standard»).

According to the Standard, inventories are defined as assets that are:

held for further sale (distribution, transfer) in the ordinary course of business;

in the process of production for further sale of the produced product;

held for consumption in the course of production, performance of works, services, and management of the enterprise [1].

In turn, enterprises that use international standards for accounting and financial reporting in the course of their business activities define inventories in accordance with the provisions of International Accounting Standard 2 «Inventories» as assets held for sale in the ordinary course of business, are in the process of production for such sale, or exist in the form of primary or secondary materials for consumption in the production process or in the provision of services [2].

Validated methods of modern analysis and an organised internal audit process determine the condition and efficiency of the use of inventories, which constitute a significant part of the enterprise's assets.

The main objective of the internal audit of inventories is to identify various risks in order to provide further recommendations for their elimination and improve vulnerabilities in the accounting treatment of inventories.

Thanks to the results of the analysis carried out by the audit service, the company has the opportunity to obtain the necessary information for making management decisions by both the owners and management of the company. Clearly formulated management decisions are necessary to develop the external strategy of the enterprise, improve internal business processes, and, as a result, improve the financial situation of the enterprise.

The regulatory and legal support for the audit of inventories is provided by the Law of Ukraine «On Audit of Financial Statements and Auditing Activities» [3]. However, it should be noted that the state of legislative support for internal audit at the domestic level for private enterprises requires development and research. For example, the «Internal Audit Standards» approved by the order of the Ministry of Finance of Ukraine No. 1247 dated 04.10.2011 define approaches to the implementation of internal audit activities in ministries, other central executive authorities, regional and city state administrations, other key spending units of the state budget, their territorial bodies and budgetary institutions under their management, and the assessment of the quality of such audit. Therefore, when conducting audits, the internal audit service of a commercial enterprise should use standards of various levels that regulate general approaches to auditing activities, audit methodologies that specify the practical application of International Standards of Quality Control, Auditing, Review, and Other Assurance and Related Services (hereinafter referred to as ISAs) [4]. ISAs define the requirements for the procedure for conducting audit activities. In addition, ISAs provide analytical information for making informed management decisions, such as determining the dynamics of an enterprise's development, its growth, stability or decline, and, accordingly, developing strategies, as well as calculating the impact of competitive market factors.

The implemented internal audit system will allow timely and efficient management decisions to be made in order to meet performance targets and, if necessary, to make adjustments to the development of business processes based on actual results. Therefore, as a result, it is possible to determine the achievement of the following goals:

ensuring the financial stability of the enterprise;

increasing the company's competitiveness;

reducing the cost of purchasing and storing inventory;

prevention of spoilage and theft of inventories;

control of the use of production inventories in accordance with the technological process.

At an enterprise, the process of conducting an internal audit of production inventories should follow the following sequence:

Preparation of the annual plan and programme of inventory audit.

Organisation and implementation of audits of accounting and reporting of the enterprise's inventories.

Monitoring the application of recommendations to improve inventory management and the reflection of operations in the accounting records.

Quality control of the internal audit of inventories.

To ensure a quality audit, it is recommended to use the developed inventory audit plan, which includes a list and sequence of actions and facilitates the collection of sufficient information (Table 1).

Table 1. Audit plan for production inventories

According to ISA 300, audit planning is a continuous and iterative process that begins shortly after the completion of the previous audit and continues until the current audit engagement is completed [4]. Planning includes consideration of the timing of certain activities and audit procedures to be completed before performing further audit procedures.

In the course of an internal audit, an important component of obtaining reliable information is the preparation of the auditor's working documents.

According to ISA 230, audit documentation is a record of the audit procedures performed, the related audit evidence obtained and the conclusions reached by the auditor (sometimes also referred to as «working documents» or «working documentation») [4].

Working documents are used:

in the process of planning the audit and directly during the audit;

in the current control of the work performed;

to record evidence to support the audit opinion

It should be noted that there are no unified forms of working documentation, and therefore the auditor independently develops a list of documents required for the audit, taking into account the scope of the enterprise and the object of the audit, in this case, the enterprise's inventories. Nevertheless, the application of ISAs makes it possible to standardise the approach to the audit, including the composition and structure of working documentation.

In accordance with International Standard on Auditing 230, the following should be documented:

the main characteristics of the articles and issues examined;

key issues investigated in the course of the audit, as well as the conclusions drawn by the auditor;

deviations from the principles specified in the standards;

information on individuals who participated in the preparation and review of audit documents [4].

In order to prevent the most common violations in documenting audits, such as poor quality of the auditor's working documents, non-compliance with the requirements for the formation and storage of audit files and insufficient documentation required to justify the size of the audit sample, it is proposed to use the developed working documents of the auditor presented in Tables 2--5 to conduct an audit of production inventories.

Table 2. Audit of synthetic and analytical accounting data of account 20 «Production inventories»

This working document will allow us to verify the correctness and reliability of the information on account 20 «Production inventories» and other financial statements in order to identify errors in the reflection of operations with production inventories.

Table 3. Determining the compliance of synthetic accounting data to the company's financial statements

The above working document is focused on the audit of the correctness of the reflection of inventories in the financial statements.

Table 4. Audit of the receipt of production inventories in accordance with the goods supply agreement and accounting data

The developed document is aimed at verifying the accuracy of the actually recorded production inventories according to the accounting data in accordance with the information specified in the goods supply agreement, which allows for identifying discrepancies in the documentation and cases of inaccurate recording of goods.

Table 5. Audit of production inventories disposal

During the audit, the auditor must verify the appropriateness of the disposal of inventories and their intended use, as well as the correctness of their accounting records.

In addition, other steps can be further explored to improve the audit of production inventories:

Assessing the effectiveness of internal controls over inventory operations will help reduce the risk of error and fraud in inventory accounting. Recommendations for improving controls may include improving receiving and shipping procedures, monitoring production inventories in the warehouse, and improving the accounting system.

Reviewing and updating the inventory valuation policy may improve the accuracy of financial reporting. In view of changes in market conditions and the enterprise's strategy, it may be necessary to revise valuation methods.

Improving inventory turnover: Reducing the time that goods are held in a warehouse can reduce the risk of obsolete inventories and resulting losses. The auditor may recommend improvements in inventory management, including optimising inventory levels and implementing more effective inventory management systems.

Audit of accounting for excess inventories, as some enterprises may keep excess inventories, which leads to unnecessary financial burdens. The auditor can check whether there is a policy to reduce excess inventories and whether it meets the business needs of the enterprise.

Risk and opportunity analysis, where the auditor can help the enterprise identify potential risks associated with inventory management and offer recommendations to mitigate them.

Modernisation of accounting systems and implementation of automated inventory management solutions can improve data quality and simplify audits [5, p. 148].

The overall objective of improving the inventory audit is to ensure the accuracy and reliability of financial reporting, reduce risks and improve the efficiency of inventory management.

Conclusions

Today, the internal inventory audit is a necessary form of control over the inventory accounting, as well as its management and reflection in the financial statements. Internal audit allows the management to assess the financial condition of the enterprise and identify deviations in the most significant performance indicators of the economic entity. Given the absence of domestic legislative stages of internal audit, as well as standard forms of documents for grouping audit evidence, the author suggests using the developed plan for internal audit of production inventories and some standard working documents of the auditor. Taking into account the above, it should be determined that the methodology and component stages of internal audit require further research and development of unified internal audit standards.

Список використаних джерел

1. Національне положення (стандарт) бухгалтерського обліку 9 «Запаси» від 20.10.1999 р. № 246 з наступними змінами та доповненнями. Офіційний сайт Верховної Ради України. URL: https://zakon.rada.gov.ua/laws/show/z0751-99#Text (дата звернення: 15.10.2023 р.).

2. Міжнародний стандарт бухгалтерського обліку 2 «Запаси» від 01.01.2023 р. Офіційний сайт Верховної Ради України. URL: https://zakon.rada.gov.ua/laws/show/929_021#Text (дата звернення: 15.10.2023 р.).

3. Закон України «Про аудит фінансової звітності та аудиторську діяльність» від 21.12.2017 р. № 2258-VIII. Офіційний сайт Верховної Ради України. URL: https://zakon.rada.gov.ua/laws/show/2258-19#Text (дата звернення: 15.10.2023 р.).

4. International Standard on Auditing (ISA). Official website of the International Auditing and Assurance Standards Board. Available at: https://www.iaasb.org/publications/2022-handbook-international-quality-management-auditing-review-other-assurance-and-related-services (дата звернення: 15.10.2023 р.).

5. Зінченко О.В., Сайко К.І. (2017) Аналіз і аудит виробничих запасів на підприємствах: напрямки вдосконалення. Сучасний стан та перспективи розвитку економіки, обліку, фінансів та управління в Україні та світі: збірник тез доповідей Міжнародної науково-практичної конференції (Україна, м. Полтава, 2017 р), м. Полтава: ЦФЕНД, -- С. 147, 148.

References

1. Natsionalne polozhennia (standart) bukhhalterskoho obliku 9 «Zapasy» vid 20.10.1999 № 246 z nastupnymy zminamy ta dopovnenniamy. Ofitsiinyi sait Verkhovnoi Rady Ukrainy [National Accounting Standard 9 «Inventories» dated 20.10.1999 No. 246 with subsequent amendments and additions// Official website of the Verkhovna Rada of Ukraine]. Available at: https://zakon.rada.gov.ua/laws/show/z0751-99#Text (accessed 15 October 2023) (in Ukrainian).

2. Mizhnarodnyi standart bukhhalterskoho obliku 2 «Zapasy» vid 01.01.2023. Ofitsiinyi sait Verkhovnoi Rady Ukrainy [International Accounting Standard 2 «Inventories» dated 01.01.2023// Official website of the Verkhovna Rada of Ukraine]. Available at: https://zakon.rada.gov.ua/laws/show/929_021#Text (accessed 15 October 2023) (in Ukrainian).

3. Zakon Ukrainy «Pro audyt finansovoi zvitnosti ta audytorsku diialnist» vid 21.12.2017 № 2258-VIII. Ofitsiinyi sait Verkhovnoi Rady Ukrainy [Law of Ukraine «On the Audit of Financial Statements and Auditing Activities» dated 21.12.2017 No. 2258-VIII// Official website of the Verkhovna Rada of Ukraine]. Available at: https://zakon.rada.gov.ua/laws/show/2258-19#Text (accessed 15 October 2023) (in Ukrainian).

4. International Standard on Auditing (ISA). Official website of the International Auditing and Assurance Standards Board. Available at: https://www.iaasb.org/publications/2022-handbook-international-quality-management-au-diting-review-other-assurance-and-related-services (accessed 15 October 2023).

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