Observation of a client's inventory is a presumptively mandatory audit procedure.a. What part should the auditors play in planning the physical inventory?b. Describe the procedures performed by the auditors during their observation of a client's physical inventory.c. Why do the auditors document their inventory test counts in their working papers?
What will be an ideal response?
a. The auditors should review the client's planning of the physical inventory and make suggestions for improvement.
b. During the inventory observation, the auditors:
| 1. | Evaluate whether the inventory procedures are followed which assure that all items |
| 2. | Be alert for goods that appear to be damaged or obsolete. |
| 3. | Obtain information to test the client's cutoff of purchases and sales. |
| 4. | Make test counts and record them in their working papers. |
| 5. | Make inquiries regarding goods on consignment. |
| 6. | Obtain tag control information and record the information in the working papers. |
c. The auditors document their test counts in the working papers to later test the accuracy of the final inventory listing.
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