When outside firms of non-accountants specialising in the taking of physical inventories are used to count, list, price and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the auditor will ordinarily:
A)make or observe some physical counts of the inventory, re-compute certain inventory calculations and test certain inventory transactions.
B)consider the report of the outside inventory-taking firm to be an acceptable alternative procedure to the observation of physical inventories.
C)consider the reduced audit effort with respect to the physical count of inventory as a scope limitation.
D)not reduce the extent of work on the physical count of inventory.

Question

Quizplus · Accepted Answer

Even if an outside firm of non-accountants specialising in the taking of physical inventories is used, the auditor is responsible for obtaining sufficient appropriate audit evidence about the existence and condition of inventory. The auditor would therefore typically make or observe physical counts of the inventory, re-compute certain inventory calculations and test certain inventory transactions. This is consistent with the auditing standards, which require auditors to obtain sufficient appropriate audit evidence to support their opinion on the financial statements. Therefore, choice A is the best choice.

Option B is incorrect as it is not a suitable alternative to the auditor's physical count. Option C is also incorrect as a reduction in audit effort is not a scope limitation but rather a judgement made by the auditor. Finally, option D is not suitable as the auditor is required to obtain sufficient appropriate audit evidence regardless of the use of an outside firm.

When Outside Firms of Non-Accountants Specialising in the Taking of Physical