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

question 31

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:

Inter-Rater

Relating to the level of agreement or consistency between different individuals (raters) assessing or scoring the same phenomenon.

Consistency

The degree to which a person's responses or behaviors are the same across different situations or over time.

Computed R-Values

Numerical measures that represent the strength and direction of a linear relationship between two variables.

Test Scores Reliability

The degree to which test scores are consistent and stable over time, indicating the reliability of the test.