Audit and Assurance Practice Exam

What audit procedure would be appropriate to test the existence assertion for inventory?

1. Conduct a market analysis on inventory prices

2. Review the client's proposed physical inventory procedures

3. Analyze customer feedback on inventory items

4. Check inventory against theoretical calculations

The correct answer is: Review the client's proposed physical inventory procedures

To test the existence assertion for inventory, reviewing the client's proposed physical inventory procedures is appropriate because this procedure directly relates to verifying that the physical inventory presented on the financial statements actually exists. When auditors assess the procedures clients have in place for counting and verifying inventory, they are able to evaluate the controls and processes aimed at ensuring that all inventory items are accounted for accurately and truly exist. In the context of the existence assertion, it is essential that the items reported in the inventory are real and on hand. By reviewing the physical inventory procedures, the auditor can ensure that these processes are robust and effectively implemented to detect any discrepancies or issues, reinforcing the reliability of the inventory balance reported. Other methods like conducting market analysis, analyzing customer feedback, or theoretical calculations can provide useful information about inventory valuation or market performance, but they do not directly confirm that the inventory exists. These options may contribute valuable insights or support in other areas related to inventory, yet they lack the direct connection necessary to test the existence assertion effectively.