Question

Your firm is auditing a wholesaler that sells slot machines to Las Vegas casinos. You are concerned that your client's inventory balance is understated. Which of the below procedures best addresses your concern?

Question 3 options: Inspect and count inventory in the warehouse and then, check to see if the inventory counted is recorded in the accounting records. Inspect and count inventory recorded in the accounting records. Test internal controls related to the shipment of slot machines to customers. Test internal controls related to inventory accounting methods.

Answer 1

Answer a)Inspect and count inventory in the warehouse and then, check to see if the inventory counted is recorded in the accounting records.

Counting the hand count of the stock is the simplest and effective ways determine the inventory errors. After comparing the hand counts and the financial statemnts, one can easily make out whether inventory is overstated or understated.If the inventory error isn't corrected, one will start the next financial period with an understated beginning inventory and end up overstating your income. Only testing the accounts and accounting methods will not do the job.