To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the:Select one:a.contractual commitments made by the purchasing department.b.purchase invoices received on or around year end.c.terms of the open purchase orders.d.purchase cutoff procedures
Question
To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the:Select one:a.contractual commitments made by the purchasing department.b.purchase invoices received on or around year end.c.terms of the open purchase orders.d.purchase cutoff procedures
Solution
The best way to ensure that a company has properly included merchandise that it owns in its ending inventory is to review and test the purchase cutoff procedures. This is because the cutoff procedures will provide information about when the company recognizes purchases and thus, when the merchandise is included in the inventory.
Here are the steps to do this:
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Obtain a detailed understanding of the company's purchase cutoff procedures. This includes understanding how the company determines when to recognize a purchase and include it in the inventory.
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Review the company's documentation of these procedures. This could include written policies and procedures, flowcharts, or other forms of documentation.
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Test the company's compliance with these procedures. This could involve selecting a sample of purchases made around the year end and verifying that they were included in the ending inventory in accordance with the company's cutoff procedures.
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If any discrepancies or issues are identified, these should be investigated further. This could involve discussing the issues with management, reviewing additional documentation, or performing additional testing.
So, the correct answer is d. purchase cutoff procedures.
Similar Questions
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The account we use to recognise inventory that we have sold
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