An internal auditor must take the right approach when assessing inventory value from stock count results. Learn the key factors for collecting reliable audit evidence.
Table of Contents
Question
An internal auditor is assessing the value of inventory in the financial accounts by reviewing the results of an inventory stock count. Which of the following statements is true regarding this approach to collecting evidence?
A. Although the auditor did not physically observe the stock count, the results can be considered reliable.
B. The stock count results offer sufficient information for the auditor to assess the inventory.
C. The results of the stock count may be considered relevant information for the purpose of this review.
D. Tracing the stock count records to the stock items would achieve greater reliability.
Answer
D. Tracing the stock count records to the stock items would achieve greater reliability.
Explanation
An internal auditor assessing the value of inventory by reviewing stock count results should trace the stock count records to the actual stock items to achieve greater reliability of audit evidence.
While the stock count results may provide relevant information for the auditor’s review, they alone do not offer sufficient, reliable evidence to assess the inventory balance. Simply relying on the recorded count numbers without validating them against the physical stock items leaves room for error and potential misstatement.
To gain greater assurance, the auditor should select a sample of items from the stock count records and physically inspect the corresponding inventory, verifying that the recorded quantities match the stock on hand. They should also trace a sample of items from the physical inventory back to the count records. This two-way tracing between recorded numbers and actual stock allows the auditor to test the accuracy and completeness of the count.
Additionally, the auditor should assess the stock count process itself, considering factors such as:
- Whether the count was conducted by persons independent from day-to-day custody of inventory
- If the count followed a systematic approach to avoid double-counting or missed items
- How count discrepancies were investigated and resolved
- If damaged, obsolete or slow-moving items were properly identified
Evaluating the overall reliability of the stock counting procedures, combined with substantive testing tracing records to physical stock, provides a stronger basis for the auditor to determine if the inventory value in the financial accounts is fairly stated. Simply reviewing count records alone is not sufficient.
IIA-CIA-Part2 certification exam assessment practice question and answer (Q&A) dump including multiple choice questions (MCQ) and objective type questions, with detail explanation and reference available free, helpful to pass the IIA-CIA-Part2 exam and earn IIA-CIA-Part2 certification.