The auditor's inventory observation test counts are traced to the client's inventory listing to test for which of the following financial statement assertions?

Question

Quizplus · Accepted Answer

Choice "A" is correct. The auditor should test the physical inventory report by tracing test counts taken by the auditor to the report, thereby verifying its completeness. Choice "B" is incorrect. Tracing from test counts to the client's inventory listing does not test rights and obligations. Rights and obligations might be tested by examining paid vendors' invoices, inspecting consignment agreements and contracts, or by confirming inventory held at outside locations. Choice "C" is incorrect. Tracing from test counts to the client's inventory listing does not test allocation and valuation. Allocation and valuation might be tested by examining paid vendors' invoices, evaluating direct labor rates, recalculating overhead rates, or examining an analysis of inventory turnover. Choice "D" is incorrect. Tracing from test counts to the client's inventory listing does not test understandability and classification. Understandability and classification might be tested by confirming inventories pledged under loan agreements, examining drafts of the financial statements for appropriate balance sheet classification, etc.

The Auditor's Inventory Observation Test Counts Are Traced to the Client's