In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would:

Question

Quizplus · Accepted Answer

Choice "C" is correct. This question asks about internal control. Review of descriptions of controls would typically be performed while gaining an understanding of an entity's internal control (for any system or cycle, not just inventory). Choice "A" is incorrect. Analysis of inventory ratios is an analytical procedure, which is not used to gain an understanding of internal control. Choice "B" is incorrect. Analytical procedures are used in planning the audit, as a substantive test, or for final overall review; they are not used to gain an understanding of internal control. Choice "D" is incorrect. Observation of physical inventory counts is a substantive test, not a procedure used to gain an understanding of internal control.

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