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 |
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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. |
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3. User department and quality control department (where it is required) must provide concurrence before acceptance. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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3. Ensure proper documentation (transfer orders, memos) for inter-location inventory transfers. Confirm inventory is recorded in the correct location at the correct time. |
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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. |
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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. |
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3. Monitor and review slow-moving and obsolete inventory. Ensure proper write-offs or provisions are made for obsolescence inventory. |
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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. |
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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. |
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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. |
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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. |
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3. Ensure GST and other indirect taxes are excluded from inventory cost. |
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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. |