Inventory Observations

Inventory observations!  Aren’t they fun?  One aspect of this profession has changed little.  And that is an audit procedure at (or near) year end.  CPAs around South Carolina will be testing inventory counts from the Upstate to the Low Country, in the Sand Hills and many business locations between.  We’ll be in warehouses, on job sites, in back fields, in lumber yards, on rail cars, in grain storage bins and most every kind of location one can imagine.  In days gone by CPAs sat around sharing stories of their most demanding or unique inventory observations.  It is almost a mark of a “real” CPA to have had two experiences; passing “the exam” and a news-worthy inventory observation.

As one graduates to the level of partner or share holder, they can delegate this pleasure to the junior staff.  In my early years it seemed I got the grand pleasure of test counting steel beams.  The need for a hard hat came in very handy, as I focused on my inventory sheets rather than the sharp edges of the beam that may have stuck out a bit too far.  And the weather never seemed to cooperate, as I recall snow and ice covering those cold and long unending beams from one end of eternity to the other.  The random counts are quite the same for me today as they were in the mid 1970’s.  But I must confess that the colder the outdoor weather, the smaller the random sample and the faster the count.

It seemed that the client’s employees were willing to help, but not eager to be at work that day.  Most employees are given days off during Christmas and New Years.  They had just completed the boring task of counting every piece of inventory in the business.  And now they had to entertain a CPA, when they really wanted to be at home enjoying their family.  In some cases that employee may have had a slight hangover and/or was missing a bowl game on television.  So they were just as anxious to finish as was I.

As the Director of Tax in our firm, I have slid over to the side of the practice that does not require inventory observations.  But in support of the audit staff (who helps out during the tax crunch), we “tax folk” lend a helping hand.

I must admit that I do the “bluff” during these observations.  “Are you sure that is a 1211LC2?  Or is it a 1211LC3?” (whatever that might be).  I kick two or three 55 gallon drums and listen for an echo.  I ask the employee to pull out the one item in the very back corner of the stack or top of the shelf.  And when I get away from any members of the management or accounting team, I always ask the warehouse employee if anyone has been fired for theft.  Or I ask them how in the world could anyone walk off with this “stuff”.  You’d be surprised to hear some of the answers.  This past Monday a lady told me she’d break someone’s arm if she saw them walking off with inventory.  Hmmm…a good system for internal control?  That’ll work!

If any of my fellow SCACPA members have a unique experience, please share same in the comments section of this blog.  Have a great holiday season and good luck on those inventory observations!

Blogger: Charles ‘Eddie’ Brown, CPA


About scacpa

The South Carolina Association of CPAs is a professional organization that provides support to all CPAs – whether in public practice, industry, government or education - with lifelong learning opportunities necessary for their success, the promotion of high ethical standards and legislative advocacy for both the public good and for the profession.
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