Which of the Following Is the Best Audit Procedure for the Discovery

question 12

Multiple Choice

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

• A)Compare the physical quantities of slow-moving items with corresponding quantities of the prior year.
• B)Observe the condition of merchandise and raw materials during the entity's physical inventory count.
• C)Review the management's inventory representation letter for accuracy.
• D)Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.

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Definitions:

Liabilities

Financial obligations or debts owed by a business to outsiders, which are required to be settled in the future.

Drawing

A withdrawal made by an owner from the business for personal use.

Revenues

Income generated from normal business operations and includes discounts and deductions for returned merchandise.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, representing the ownership stake of the owners.