Why Does the Auditor Recount the Client's Inventory

question 6

Multiple Choice

Why does the auditor recount the client's inventory?

• A) to ensure that none is lost or intentionally omitted (completeness)
• B) to obtain proper cutoff information for sales and acquisitions (cutoff)
• C) to confirm that inventory as recorded on tags exists (existence)
• D) to ensure that inventory is counted accurately (accuracy)

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Definitions:

Net Income

The residual income of a company after total revenue has been diminished by all costs and taxes.

Cash Flows

The net amount of cash being transferred into and out of a business, especially considered important for assessing liquidity, flexibility, and overall financial health.

Indirect Method

An approach to preparing the cash flow statement where net income is adjusted for changes in balance sheet accounts to calculate cash from operating activities.

Operating Activities

The section of a business's cash flow statement that accounts for its core business operations' cash inflows and outflows, involving receipts from sales, payments to suppliers, and payroll.