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:

Paid-in Capital

Funds raised by a company through the sale of its equity securities, excluding any par value of the shares.

Retained Earnings

The portion of net earnings not distributed as dividends to shareholders but retained by the company for reinvestment or debt payment.

Stock Dividend

A dividend payment made in the form of additional shares rather than a cash payout, increasing the total number of shares owned.

Total Stockholders' Equity

The total value of a company's assets that are claimable by its shareholders, excluding liabilities.