Explain one audit technique you would use to determine the existence of a material error on...

Explain one audit technique you would use to determine the existence of a material error on inventory account?

Expert Solution

If your company records its inventory as an asset, and it undergoes an annual audit, then the auditors will be conducting an audit of your inventory. Given the massive size of some inventories, they may engage in quite a large number of inventory audit procedures before they are comfortable that the valuation you have stated for the inventory asset is reasonable. Here are some of the inventory audit procedures that they may follow:

Cutoff analysis

The auditors will examine your procedures for halting any further receiving into the warehouse or shipments from it at the time of the physical inventory count, so that extraneous inventory items are excluded. They typically test the last few receiving and shipping transactions prior to the physical count, as well as transactions immediately following it, to see if you are properly accounting for them.

Observe the physical inventory count
Reconcile the inventory count to the general ledger.
Test high-value items
Test error-prone items

ekkarill92 answered 12 hours ago

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