What it is
A manufacturer’s inventory is built from bills of material, routings, labor and overhead, so a misstatement can come from cost buildup as well as from the count. This checklist covers the count, then tests the costing system line by line.
It complements the inventory audit program and the test count sheet. Use it where standard costs, overhead rates, work in process and excess and obsolete reserves need their own documentation.
When to use it
- Planning inventory work for a manufacturer or assembler.
- When standard costs are updated infrequently or overhead is large.
- To document the response to inventory fraud and valuation risk.
What’s inside
- Costing system and perpetual inventory understanding
- Count observation, WIP stage and third-party stock
- Material, labor and overhead tests; variance capitalization
- Net realizable value, excess and obsolete and purchase commitment losses
- Cutoff, payables and disclosure
Standard cited
This template follows AU-C 501 / ASC 330. 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
Can standard cost be used for GAAP inventory?
Yes, if standards are reviewed and adjusted so the result approximates actual cost. Test how recently standards were updated and whether the variances were allocated between inventory and cost of sales.
How should overhead be absorbed?
Fixed production overhead is allocated based on normal capacity. Unallocated overhead from abnormally low production is expensed as incurred (ASC 330-10-30).
What if the count is not at year end?
Test the rollforward or roll-back between the count date and the balance sheet date using receiving, shipping and production records, and test cutoff at the count date.
Related templates
- Audit Program: Inventory
- Inventory Observation Memo and Test Count Sheet (AU-C 501)
- Search for Unrecorded Liabilities Workpaper
Last updated 11/05/2026. All free templates.