Basic Audit Staff Training: Auditing Inventory & COGS

Author: Robert K Minniti

This course provides new and developing auditors with a practical, step by step foundation for auditing inventory and cost of goods sold (COGS), two of the most material and judgment intensive areas of the financial statements. Participants will learn how inventory flows through the accounting system, how valuation methods affect financial reporting, and how to design audit procedures aligned with U.S. GAAS and PCAOB requirements.

The program emphasizes real world audit techniques, including observing physical inventory counts, testing pricing and quantities, applying analytical procedures, and auditing estimated inventory using the Gross Profit and Retail Inventory Methods. Common fraud schemes, red flags, cutoff errors, productio related risks, and documentation best practices are also highlighted.

By the end of the course, attendees will be prepared to conduct efficient, well documented inventory and COGS audits that strengthen audit quality and support accurate financial reporting.

Publication Date: March 2026

Designed For
This course is ideal for developing auditors and professionals involved in inventory‑related processes.

Topics Covered

• Inventory cycle: key processes, risks, and audit implications
• Internal controls over purchasing, receiving, production, and costing
• Observing and auditing physical inventory counts
• Cutoff testing and identifying unrecorded or misstated transactions
• Substantive testing techniques: pricing tests, quantity tests, roll‑forward and roll‑back analyses
• Analytical procedures for inventory turnover, gross profit trends, and COGS relationships
• Gross Profit Method and Retail Inventory Method: audit considerations
• Fraud risks including fictitious inventory, manipulation of quantities, and costing irregularities
• Documentation best practices and common pitfalls

Learning Objectives

• Explain the inventory cycle and its impact on financial reporting and audit risk
• Identify common risks, red flags, and fraud schemes involving inventory and COGS
• Evaluate and test internal controls over purchasing, production, warehousing, and costing
• Design and perform substantive procedures for inventory including price testing, quantity testing, cutoff, and existence verification
• Apply analytical procedures and data driven techniques to assess inventory and COGS reasonableness
• Apply and evaluate the Gross Profit Method and Retail Inventory Method for estimated inventory
• List inventory audit procedures and findings in accordance with professional standards

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Auditing (2 hours)

Program Prerequisites
None

Advance Preparation
None