Unqualified Audit Opinion Wanted? Consider a Year-End Inventory Observation

By Sarah Dryden,

This past weekend I found myself scrambling around town and my house trying to finish up my way-too-long to-do list before December 25th hits.  I want things to be just perfect for my family as we celebrate one of the most important days of our year.  In the accounting world, the next big date to scramble for is the night of December 31st/January 1st as calendar year-end is just around the corner.

Picture this…

While the rest of the world is partying at times square, even if it is via our satellite TVs, those of us in the accounting world will be huddling up in warehouses, counting technology components and assessing the salability of obsolete and slow-moving inventory. 

The scene I’m describing is the infamous year-end inventory observation.

Last December, I wrote a post to help you to assess whether your company is really ready for an audit, and one key component I highlighted was ensuring that your year-end inventory has been observed by an independent third party.  If your company will need an audit and want an unqualified (clean) audit opinion, both beginning and ending inventory must be observed by your auditor.  So even if you think you won’t need an audit until 12/31/2014, it’s worthwhile to schedule a year-end independent count at 12/31/2013.

My encouragement to you is:  jump ahead of the last minute scramble by getting your inventory observation squared away before New Year’s arrives in Times Square.  Or, before it’s too late (“we might need an audit in the future”)…inventory rollback exercises are much more costly than paying for a real-time physical count and oftentimes produce unauditable results that will affect the auditor’s ability to give you a “clean” audit opinion.