ExpertHard1 markMultiple Choice
CPA · Question 38 · Area III: Procedures
An auditor is testing the 'Rights and Obligations' assertion for a client's inventory. Which of the following procedures is MOST relevant?
An auditor is testing the 'Rights and Obligations' assertion for a client's inventory. Which of the following procedures is MOST relevant?
Answer options:
A.
Observing the physical inventory count.
B.
Testing the mathematical accuracy of the inventory listing.
C.
Reviewing consignment agreements and inquiring about goods held on consignment.
D.
Analyzing inventory turnover rates.
How to approach this question
Link Assertion (Rights - do we own it?) to Procedure (Consignment check).
Full Answer
C.Reviewing consignment agreements and inquiring about goods held on consignment.✓ Correct
The Rights and Obligations assertion addresses whether the entity owns the assets. Goods held on consignment belong to the consignor, not the client. Reviewing consignment agreements ensures that goods in the warehouse that don't belong to the client are excluded from inventory.
Common mistakes
Assuming physical observation proves ownership (it only proves existence).
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