When a client uses perpetual inventory records, the tests of details of balances for inventory can be significantly reduced if the auditor believes the records are accurate. The controls over the acquisitions included in the records are normally tested as a part of the:
A) tests of controls.
B) tests of controls and tests of transactions.
C) tests of details of balances.
D) analytical procedures and tests of controls.

Question

Quizplus · Accepted Answer

When a client uses perpetual inventory records, the controls over the acquisitions included in the records are normally tested as a part of the tests of controls and tests of transactions. This is because the perpetual inventory system involves continuous recording of inventory, and the controls over acquisitions are crucial for the accuracy of the records. Therefore, testing the controls over acquisitions helps to ensure the accuracy of the perpetual inventory records, which in turn reduces the need for extensive tests of details of balances. Additionally, testing controls over acquisitions also helps to ensure that the company is properly valuing and recording inventory per the applicable accounting standards.

When a Client Uses Perpetual Inventory Records, the Tests of Details