In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would:
A)review the entity's description of inventory policies and procedures.
B)perform test counts of inventory during the entity's physical count.
C)analyze inventory turnover statistics to identify slow-moving and obsolete items.
D)analyze monthly production reports to identify variances and unusual transactions.

Question

Quizplus · Accepted Answer

Reviewing the entity's description of inventory policies and procedures is a common approach taken by auditors to obtain an understanding of internal controls over inventory balances. This would provide insight into how the entity manages inventory, including the processes used to record, report, and value inventory transactions. While the other options may be relevant to the audit of inventory balances, they are not as likely to provide an overall understanding of the entity's internal control as reviewing inventory policies and procedures.

In Obtaining an Understanding of a Manufacturing Entity's Internal Control