In auditing a client's inventory, the auditors must be concerned with the detection of goods that are both damaged and obsolete.a. Why are the auditors concerned with detecting damaged and obsolete goods?b. How do the auditors test for damaged goods in the client's inventory?c. How do the auditors test for obsolete goods in the client's inventory?
What will be an ideal response?
a. Auditors are concerned about detecting damaged and obsolete inventory because the recorded cost of these goods may be significantly greater than their net realizable value.
b. Auditors test for damaged goods by inquiry of client personnel and observation during the client's physical inventory.
c. Tests for obsolescence include:
| 1. | Review of perpetual inventory records; |
| 2. | Analytical procedures, such as calculation of ratios (e.g. inventory turnover); and |
| 3. | Inquiry of client personnel. |
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