Observation of a Client's Inventory Is a Presumptively Mandatory Audit

question 63

Essay

Observation of a client's inventory is a presumptively mandatory audit procedure.
a.What part should the auditors play in planning the physical inventory?
b.Describe the procedures performed by the auditors during their observation of a client's physical inventory.
c.Why do the auditors document their inventory test counts in their working papers?

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Definitions:

Passive Investment

An investment strategy involving minimal buying and selling, aiming to benefit from long-term market returns with low fees.

Four-factor Model

A financial model that expands the three-factor model (market risk, size risk, and value risk) by adding a momentum factor to explain stock returns.

Fama and French Factors

Fama and French factors are three factors—market risk, size risk, and value risk—used in explaining portfolio returns beyond the market risk measured by beta.

Semistrong-form

A theory suggesting that stock prices incorporate all publicly available information, including historical data and public news.