Inventory Observation Memo and Test Count Sheet (AU-C 501)

What it is

When inventory is material, AU-C 501 requires the auditor to attend the physical count (unless impracticable) to evaluate management’s instructions, observe the count, inspect the inventory and make test counts, and then test the final inventory records against the count results.

This workbook has a memo tab for the observation (procedures, controls, condition, cut-off) and a test count tab that compares auditor counts with client counts in both directions and values the differences.

When to use it

• At each year-end (or interim) physical count the auditor attends.
• For counts at third-party warehouses where observation is chosen instead of, or in addition to, confirmation.

What’s inside

• Observation memo: count instructions, tag control, team, controls observed
• Obsolete, damaged and slow-moving items noted
• Cut-off: last receiving and shipping documents
• Test count sheet: floor-to-sheet and sheet-to-floor with quantity and dollar differences
• Summary of differences and follow-up to the final inventory listing

Standard cited

This template follows 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

Related templates

• Audit Planning Memo (AU-C 300)
• Lead Schedule Template (Excel)
• Summary of Uncorrected Misstatements (AU-C 450)

Last updated 11/04/2026. All free templates.