When Inventories Are Material and the Auditor Does Not Observe

question 78

Multiple Choice

When inventories are material and the auditor does not observe the inventory at or near the year-end, professional standards require the auditor to:

• A) thoroughly test the accounting records.
• B) observe some physical counts of the inventory.
• C) disclaim an opinion on the financial statements.
• D) resign from the engagement.
• E) reperform the entire inventory count.

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Definitions:

Utility

In economics, the total satisfaction received from consuming a good or service.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay.

Marginal Utility

The extra pleasure or benefit a customer receives from purchasing an additional unit of a product or service.

Total Utility

The total satisfaction or benefit obtained from consuming a particular quantity of goods or services.