When should auditors attend an inventory count?

When should auditors attend an inventory count?

• A. If it is unnecessary
• B. If the inventory is immaterial
• C. If it is material
• D. If directed by management

Answer: (C)

Auditors should attend an inventory count when the inventory is material because materiality directly impacts the financial statements and the overall audit opinion. When inventory is material, it represents a significant amount on the balance sheet, and the accuracy of its valuation is crucial for the fair presentation of the financial statements. Attending the inventory count allows auditors to gain direct evidence regarding the existence, condition, and quantity of inventory, thus enhancing the reliability of the inventory figures reported. Furthermore, physical observation during the count allows auditors to identify any potential issues, such as theft, obsolescence, or misstatement, that could affect the valuation of inventory. When inventory is material, ensuring the accuracy of these figures is essential for assessing the risk of material misstatement, leading to a more effective audit process.

Auditors should attend an inventory count when the inventory is material because materiality directly impacts the financial statements and the overall audit opinion. When inventory is material, it represents a significant amount on the balance sheet, and the accuracy of its valuation is crucial for the fair presentation of the financial statements. Attending the inventory count allows auditors to gain direct evidence regarding the existence, condition, and quantity of inventory, thus enhancing the reliability of the inventory figures reported.

Furthermore, physical observation during the count allows auditors to identify any potential issues, such as theft, obsolescence, or misstatement, that could affect the valuation of inventory. When inventory is material, ensuring the accuracy of these figures is essential for assessing the risk of material misstatement, leading to a more effective audit process.