When outside firms of non-accountants specialising in the taking of physical inventories are used to count, list, price and subsequently compute the total dollar amount of inventory on hand at the date of the physical count,
The auditor will ordinarily:
A) make or observe some physical counts of the inventory, recompute certain inventory calculations and test certain inventory transactions.
B) consider the report of the outside inventory-taking firm to be an acceptable alternative procedure to the observation of physical inventories.
C) consider the reduced audit effort with respect to the physical count of inventory as a scope limitation.
D) not reduce the extent of work on the physical count of inventory.

Question

Quizplus · Accepted Answer

Even when an outside firm is used, auditors are still responsible for ensuring the accuracy of the inventory count. Therefore, they should make or observe some physical counts, recompute inventory calculations, and test transactions to ensure accuracy. Choosing option B is incorrect because the reliance on a report alone does not satisfy the auditor's responsibilities. Option C is also incorrect because the auditor still has to perform some work, although it may be reduced. Option D is incorrect because the auditor still has a responsibility to ensure inventory is accurately counted even when an outside firm is used.

When Outside Firms of Non-Accountants Specialising in the Taking of Physical