It is frequently possible to test the physical inventory prior to the balance sheet date when
A) the perpetual inventory records are accurate and related controls operate effectively.
B) year-end sales are small.
C) the internal control system is no better at year-end than at an earlier point in time.
D) the client counts inventory at interim dates.

Question

Quizplus · Accepted Answer

If the perpetual inventory records are accurate and related controls operate effectively, it is possible to test the physical inventory prior to the balance sheet date. This is because the perpetual inventory records provide evidence of the inventory transactions and can be reconciled with the physical inventory count. The related controls such as segregation of duties and periodic inventory counts ensure the accuracy of the perpetual inventory records. This makes it possible to rely on the perpetual inventory records to test the physical inventory before year-end.

It Is Frequently Possible to Test the Physical Inventory Prior