Which one of the following is the BEST audit procedure for the discovery of damaged merchandise in a client's ending inventory?
A) Compare the physical quantities of slow- moving items with corresponding quantities of the prior year.
B) Review the management's inventory representation letter for accuracy.
C) Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.
D) Be alert for items that are located in inappropriate places while observing the client's physical inventory count.

Question

Quizplus · Accepted Answer

The best audit procedure for the discovery of damaged merchandise in a client's ending inventory would be to be alert for items that are located in inappropriate places while observing the client's physical inventory count. This could indicate that the items have been damaged and moved to a different location. Comparing physical quantities of slow-moving items with corresponding quantities of the prior year (choice A) may not necessarily reveal damaged merchandise. Reviewing the management's inventory representation letter for accuracy (choice B) would not specifically address the issue of damaged merchandise. Testing overall fairness of inventory values by comparing the company's turnover ratio with the industry average (choice C) may not detect the presence of damaged merchandise in the inventory.

Which One of the Following Is the BEST Audit Procedure