Dishware Distribution Limited uses average costing to cost its inventory.It keeps a perpetual inventory file that is linked to its sales systems.It orders inventory in for specific customers as needed,and traditionally has a slow time just before its year-end.Accordingly,inventory at the year-end is about $2000,while materiality is about $30 000.How should the auditor approach the audit of physical inventory?
A)Exclude testing of physical inventory from the audit program.
B)Use attribute sampling to select a sample of items to count.
C)Use dollar-unit sampling to select a sample of items to count.
D)Count only those items that have a dollar value in excess of $100.

Question

Quizplus · Accepted Answer

The inventory value is significantly below the materiality threshold, so the auditor may decide to exclude testing of physical inventory from the audit program due to its immaterial impact on the financial statements.

Dishware Distribution Limited Uses Average Costing to Cost Its Inventory