Control Area Checklist for Valuation of Inventories in Oracle Fusion

CMA PRADYUMNA KUMAR DASH 07 Feb 2025 333 Views 0 comment Print CA, CS, CMA | Articles

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The control area checklist for inventory valuation in Oracle Fusion outlines essential measures to maintain accurate inventory management. Key areas include the verification of inventory acceptance post-quality testing, reconciling inventory with book balances to meet CARO compliance, and ensuring proper adherence to Ind AS 2 for inventory valuation methods like FIFO and weighted average. It emphasizes the importance of timely and accurate inventory recording at receipt, ensuring proper matching of inventory in the GL and Sub-GL, and preventing the removal of finished stock before ownership transfer. Additionally, the checklist highlights controls for recording discounts, inter-unit transfers, and inventory returns, while addressing slow-moving, obsolete, and damaged stock. There is a focus on maintaining the correct valuation for finished stock, proper segregation between product and period costs, and ensuring the right treatment of demurrage charges. Finally, it stresses the importance of verifying ITC eligibility for inventory and accurately measuring spare parts, with provisions for regular reviews and adjustments for obsolescence. These measures collectively ensure transparency, compliance, and accurate reporting in inventory management within Oracle Fusion.

Control Area Checklist for Valuation of Inventories in Oracle Fusion

Sr. No.	Control Area	Risk	Likelihood	Impact	Priority (from Matrix)	Control Measures
1	Inventories Acceptance after Quality Testing	Non-compliance with acceptance standards or quality issues	Possible	Major	High	1. Proper verification of goods at the gate with stamping mentioning the date and time of receipt.
						2. Inventory should be accepted only if quality and quantity meet as per the conditions in the purchase order.
						3. User department and quality control department (where it is required) must provide concurrence before acceptance.
2	Matching of Inventory with Book balance to meet CARO Compliance for availing working capital facility.	Discrepancies between inventory balances reported to the bank and book balances	Likely	Major	High	1. Review and reconcile inventory balances reported to the bank with book balances on a quarterly basis. Investigate and address discrepancies before submission to ensure accurate reporting for working capital facility.
						2. Ensure controls are in place for timely and accurate reporting to the bank in line with CARO compliance requirements.
3	Compliance with Ind AS 2	Non-compliance with Ind AS 2 (Inventory)	Possible	Major	High	1. Ensure proper implementation of Ind AS 2 for inventory valuation, including FIFO, weighted average methods in Oracle Fusion.
						2. Review and test costing methods periodically.
4	Inventory Recording at the Time of Receipt/Transfer of Title	Inventory not recorded upon receipt or title transfer	Possible	Major	High	1. Inventory cost and quantities are automatically recorded in Oracle Fusion upon matching Purchase Order and Goods Received Note .
						2. Management reviews and approves journal entries and supporting documentation for inventory not yet received but title has been transferred.
						3. Supply Chain Department should periodically review open purchase orders which are yet to receive beyond the time limit whether to close such purchase orders should be reviewed.
5	Inventory Matching between GL and Sub-GL	Discrepancies between General Ledger (GL) and Stock Ledger (Sub-GL)	Likely	Major	High	1. Periodically reconcile inventory values between GL and Stock Ledger (Sub-GL).
						2. Any discrepancies are documented and approved by management.
6	Removal of Finished Stock from Stock Ledger Prior to Ownership Transfer	Inventory removed before actual sale	Likely	Major	High	1. Cost of Sales is recorded, and inventory is relieved automatically by Oracle upon matching customer sales order, shipping documents, and invoice (3-way match).
						2. Management reviews and approves journal entries and supporting documentation for inventory and cost of goods sold when goods are shipped prior to ownership transfer.
7	Volume or Cash Discount Recording	Incorrect recording of volume or cash discounts	Possible	Major	Medium	1. Discounts are recorded in the Stock Ledger as per the terms of the purchase order.
						2. Any Deviations from the terms must be approved by the appropriate authority.
8	Inter-Unit Transfer of Inventory	Improper valuation of inter-unit transfers	Unlikely	Major	High	1. Inventory transfers between units should be at cost (as per Ind AS 2).
						2. Manual entries for transfers must be approved by management prior to recording.
						3. Ensure proper documentation (transfer orders, memos) for inter-location inventory transfers. Confirm inventory is recorded in the correct location at the correct time.
9	Inventory Return not Recorded in Stock Ledger	Inventory returns not properly recorded	Unlikely	Major	High	1. Oracle ERP system automatically rejects stock value when materials are rejected (partially or fully) at inspection before Goods Inward Note (GIN).
						2. Any deviations should be verified with appropriate approval.
10	Examination and Treatment of Slow-moving, Obsolete and Damaged Stock	Failure to address obsolete or damaged stock	Possible	Major	High	1. Management reviews and approves obsolete and damaged inventories periodically.
						2. Value adjustments for obsolete stock are done via journal entry and reflected in financial statements on a perpetual inventory cost basis.
						3. Monitor and review slow-moving and obsolete inventory. Ensure proper write-offs or provisions are made for obsolescence inventory.
11	Basis of Valuation for Finished Stock	Incorrect valuation of finished stock	Possible	Major	Medium	1. Monthly closing inventories are calculated using weighted average method.
						2. Review of calculation methodology, assumptions, and supporting documentation before journal entries are made.
12	Proper Segregation between Product Cost and Period Cost	Misclassification between product cost and period cost	Possible	Major	High	1. Prior to recording journal entries for product cost variances, management reviews the variance calculation.
						2. The review includes assessment of methodology, assumptions, supporting documentation, and accuracy.
13	Demurrage Charges	Incorrect treatment of demurrage charges	Possible	Moderate	Medium	1. Since demurrage charges are considered abnormal and not directly related to the inventory itself, they should not be included in inventory valuation.
						2. Demurrage charges should be paid following an approval process and properly accounted for in the relevant sub-ledger and general ledger accounts.
14	Availability of ITC (Input Tax Credit)	Incorrect classification of inventory for ITC eligibility	Unlikely	Major	Medium	1. Review if any inventory received is eligible for ITC under CGST Act/Rules.
						2. Ensure proper segregation of ITC eligibility for inventory.
						3. Ensure GST and other indirect taxes are excluded from inventory cost.
15	Spare Parts in Inventory	Incorrect classification or measurement of spare parts	Unlikely	Moderate	Medium	Ensure spare parts are correctly categorized as inventory. Regularly review for obsolescence and adjust accordingly.

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Name: CMA PRADYUMNA KUMAR DASH

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I am Pradyumna Kumar Dash, a Cost Accountant (CMA) known for my proficiency across various industries. My journey has been defined by enriching experiences and impactful contributions to esteemed organizations, where I have continually demonstrated my prowess in financial management, costing, auditi View Full Profile

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Control Area Checklist for Valuation of Inventories in Oracle Fusion

Control Area Checklist for Valuation of Inventories in Oracle Fusion

Sr. No.

Control Area

Risk

Likelihood

Impact

Priority (from Matrix)

Control Measures

1

Inventories Acceptance after Quality Testing

Non-compliance with acceptance standards or quality issues

Possible

Major

High

1. Proper verification of goods at the gate with stamping mentioning the date and time of receipt.

2. Inventory should be accepted only if quality and quantity meet as per the conditions in the purchase order.

3. User department and quality control department (where it is required) must provide concurrence before acceptance.

2

Matching of Inventory with Book balance to meet CARO Compliance for availing working capital facility.

Discrepancies between inventory balances reported to the bank and book balances

Likely

Major

High

1. Review and reconcile inventory balances reported to the bank with book balances on a quarterly basis. Investigate and address discrepancies before submission to ensure accurate reporting for working capital facility.

2. Ensure controls are in place for timely and accurate reporting to the bank in line with CARO compliance requirements.

3

Compliance with Ind AS 2

Non-compliance with Ind AS 2 (Inventory)

Possible

Major

High

1. Ensure proper implementation of Ind AS 2 for inventory valuation, including FIFO, weighted average methods in Oracle Fusion.

2. Review and test costing methods periodically.

4

Inventory Recording at the Time of Receipt/Transfer of Title

Inventory not recorded upon receipt or title transfer

Possible

Major

High

1. Inventory cost and quantities are automatically recorded in Oracle Fusion upon matching Purchase Order and Goods Received Note .

2. Management reviews and approves journal entries and supporting documentation for inventory not yet received but title has been transferred.

3. Supply Chain Department should periodically review open purchase orders which are yet to receive beyond the time limit whether to close such purchase orders should be reviewed.

5

Inventory Matching between GL and Sub-GL

Discrepancies between General Ledger (GL) and Stock Ledger (Sub-GL)

Likely

Major

High

1. Periodically reconcile inventory values between GL and Stock Ledger (Sub-GL).

2. Any discrepancies are documented and approved by management.

6

Removal of Finished Stock from Stock Ledger Prior to Ownership Transfer

Inventory removed before actual sale

Likely

Major

High

1. Cost of Sales is recorded, and inventory is relieved automatically by Oracle upon matching customer sales order, shipping documents, and invoice (3-way match).

2. Management reviews and approves journal entries and supporting documentation for inventory and cost of goods sold when goods are shipped prior to ownership transfer.

7

Volume or Cash Discount Recording

Incorrect recording of volume or cash discounts

Possible

Major

Medium

1. Discounts are recorded in the Stock Ledger as per the terms of the purchase order.

2. Any Deviations from the terms must be approved by the appropriate authority.

8

Inter-Unit Transfer of Inventory

Improper valuation of inter-unit transfers

Unlikely

Major

High

1. Inventory transfers between units should be at cost (as per Ind AS 2).

2. Manual entries for transfers must be approved by management prior to recording.

3. Ensure proper documentation (transfer orders, memos) for inter-location inventory transfers. Confirm inventory is recorded in the correct location at the correct time.

9

Inventory Return not Recorded in Stock Ledger

Inventory returns not properly recorded