If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count, the auditor should ordinarily
A) withdraw from the engagement.
B) issue a qualified audit report.
C) conduct expanded observation tests of physical inventory.
D) hire a specialist to assist the auditor.

Question

Quizplus · Accepted Answer

Conducting expanded observation tests of physical inventory is the best choice in such a situation. It involves counting a larger number of inventory items, observing multiple physical counts, and verifying inventory records to ensure the accuracy of the inventory balance. This is done as physical controls are inadequate, and it is difficult to count the inventory accurately. This approach helps the auditor to gather sufficient audit evidence to form a reasonable opinion on the inventory balance. Withdrawing from the engagement or issuing a qualified report should be considered if the auditor is unable to obtain sufficient audit evidence despite conducting extensive audit procedures. Hiring a specialist may not be necessary in all cases depending on the nature of the inadequate physical controls.

If the Auditor Concludes That Physical Controls Over Inventory Are