I need to come up with an Audit Control Program for Valeant Pharmaceuticals, whi
ID: 2469385 • Letter: I
Question
I need to come up with an Audit Control Program for Valeant Pharmaceuticals, which is being questioned for its accounting methods. I need to come up with an Audit Control Program for the Inventory and Cost of Goods Sold. Valeant is a high risk company that is being questioned on its revenue recognition and inventory accounting approaches. The control program should be specified risk regarding the inventory and COGs. The plan should have an introduction and then the substantive procedures. If i can get a breif Audit Control Program for Inventory and CoGS for valeant pharmaceuticals, it would be greatly appreciated.
Explanation / Answer
Audit of inventory is complicated by a number of factors including:
Variety (diversity) of items
High volume of activity
Various (sometimes complex) valuation
Difficulty in identifying obsolete or defective inventory
Many frauds involve the inventory account
Easily transportable making it subject to double counting
May be stored at multiple locations, some may be remote
May be returned by customers
Internal control for inventory:
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All purchases are authorized
Accounting system ensures timely, accurate, and complete recording
Receipt of inventory properly accounted for
Inventory tested for quality when received/manufactured
Costs properly identified and assigned to products
Customer returns of inventory examined for defects
Inventory reviewed for obsolescence
New products introduced only after market studies and quality control tests have been made
Management actively manages inventory
Long term contracts are closely monitored
tests:
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Existence: observe year-end physical inventory
Completeness: cutoff tests
Rights: review long-term contracts, etc.
Valuation: direct tests and analytics
Disclosure: review GAAP
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