What it is
Inventory the entity does not hold cannot be counted by the auditor in the usual way. PCAOB AS 2510 says that for inventories in the hands of public warehouses or other outside custodians the auditor ordinarily obtains direct written confirmation from the custodian, and applies further procedures when the amount is significant.
The program covers the population by location, confirmation and custodian controls, ownership under consignment and processing agreements, valuation and cutoff.
When to use it
- Entities with goods in public warehouses, at processors or on consignment.
- Companies holding stock at customer sites.
- Audits where third-party inventory is a large part of current assets.
What’s inside
- Location schedule and completeness procedures
- Custodian confirmation and control evaluation procedures
- Consignment ownership, valuation and in-transit procedures
- Pledged inventory and note disclosure procedures
Standard cited
This template follows AS 2510 / AU-C 501. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use. See AU-C 501 explained.
Questions
Is confirmation enough on its own?
Where the inventory is a significant share of current or total assets, AS 2510 .14 calls for one or more further procedures, such as testing the owner’s procedures for evaluating the warehouseman or obtaining an independent accountant’s report on the warehouseman’s controls.
Does it apply to nonissuers?
The procedures are good practice for any audit. AU-C 501 is the nonissuer standard for inventory and other selected items.
Related templates
- Audit Program: Inventory
- Inventory Observation Memo and Test Count Sheet (AU-C 501)
- Manufacturing Inventory and Cost Accounting Audit Checklist
- Inventory Costing Recalculation (FIFO and Weighted Average)
Last updated 11/06/2026. All free templates.