When Outside Firms of Non-Accountants Specializing in Physical Inventory Counts

question 39

Multiple Choice

When outside firms of non-accountants specializing in physical inventory counts are used to count, list, price, and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the auditor will ordinarily

• A) Consider the report of the outside inventory firm to be an acceptable alternative procedure to the observation of physical inventories.
• B) Make or observe some physical counts of the inventory, recompute certain inventory calculations, and test certain inventory transactions.
• C) Increase the extent of work on the physical count of inventory.
• D) Consider the reduced audit effort with respect to the physical count of inventory as a scope limitation.

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Definitions:

Classical Long-Run

In economics, it denotes a period where all factors of production and costs are variable, allowing full adjustment to market changes.

Aggregate Supply Curve

A graph that shows the relationship between the overall price level in an economy and the total output produced by firms.

Potential Real GDP

The highest level of gross domestic product (GDP) that could be achieved if an economy operates at full employment.

Aggregate Demand Curve

A graphical representation showing the relationship between the overall price level and the total demand for all goods and services in an economy.