Question

Which of the following is the most appropriate potential reaction of the auditor to his assessment that the risk of material misstatement due to fraud is high in relation to existence of inventory?

• A. Visit location on surprise basis to observe test counts
• B. Request inventory count at a date close to yearend
• C. Vouch goods sent on approval very carefully
• D. Perform analytical procedures

Answer 1

The correct option is A Visit location on surprise basis to observe test counts

A surprise visit to the location of inventory is one of the best ways to observe test counts and also to see how prepared the employees are.

An auditor has the right to undertake such an activity to ensure that the processes are in place and also to check the areas where frauds can take place. A prior information of such an activity will not serve the purpose of audit.