If the Auditor Concludes That Physical Controls Over Inventory Are

question 117

Multiple Choice

If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count, the auditor should ordinarily

• A) withdraw from the engagement.
• B) issue a qualified audit report.
• C) conduct expanded observation tests of physical inventory.
• D) hire a specialist to assist the auditor.

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Definitions:

Direct Labor Hours

The total time workers or employees spend creating a product or providing a service, often used in cost accounting.

Factory Overhead

Indirect manufacturing costs not directly tied to specific units produced, including maintenance, utilities, and salaries of supervisory staff.

Administrative Expenses

Costs related to the general administration of a business, such as salaries of senior executives, accounting, and human resources, that are not directly tied to any specific business activity.

Period Cost

Expenses recognized in the accounting period when they are incurred, not directly linked to production activity.