You are auditing the inventory account and are concerned about the possibility of an inventory overstatement. What is the best audit procedure to detect damaged inventory?
A) Observe the condition of inventory during the client's physical count.
B) Compare the condition of inventory from the previous year's count to the current year.
C) Compare inventory turnover from the previous year's inventory to the current year's inventory.
D) Reconcile the inventory counts to the cost accounting records.

Question

Quizplus · Accepted Answer

Observing the condition of inventory during the client's physical count is the best audit procedure to detect damaged inventory as it allows the auditor to visually inspect the inventory for signs of damage, deterioration or obsolescence. This is a more effective procedure than comparing the current year's inventory to the previous year's count or comparing inventory turnover, as those procedures do not specifically address the issue of damaged inventory. Reconciling inventory counts to cost accounting records may help to detect inventory misstatements, but it does not specifically address the issue of damaged inventory.

You Are Auditing the Inventory Account and Are Concerned About