When outside firms of non-accountants specializing in physical inventory counts 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)consider the report of the outside inventory firm to be an acceptable alternative procedure to the observation of physical inventories.
B)make or observe some physical counts of the inventory, recompute certain inventory calculations, and test certain inventory transactions.
C)increase the extent of work on the physical count of inventory.
D)consider the reduced audit effort with respect to the physical count of inventory as a scope limitation.

Question

Quizplus · Accepted Answer

Even though an outside inventory firm was used, the auditor cannot rely solely on their report as they are not accountants. The auditor should perform some physical counts themselves, as well as recompute certain inventory calculations and test certain inventory transactions to ensure the accuracy of the inventory. This will also help to detect any errors or fraud that may have occurred during the physical count. Therefore, choice B is the best choice.

When Outside Firms of Non-Accountants Specializing in Physical Inventory Counts