I was told a story in my college Auditing class about a company who fraudulently overstated inventory. Apparently they were able to conceal this for years by shipping the inventory overnight between stores according to the audit schedule. I forgot the details, but the moral was not to tell the client the timing of observation of inventory. Similar stories support always mailing bank reconciliations and account receivable confirmations yourself.
Based on that, I answered the following question "C" by process of elimination. What do others think about this?
The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the
A: Timing of inventory observation procedures to be performed.
B: Evidence to be gathered to provide a sufficient basis for the auditor’s opinion.
C: Procedures to be undertaken to discover litigation, claims, and assessments.
D: Pending legal matters to be included in the inquiry of the client’s attorney.
Wiley answer = A
Reasoning = Coordination is needed if the auditor wants to be there.
My disagreement = The counting of inventory happens when the auditor wants it to, and the company shouldn't need advance notice.
AUD - 69, 74, 93
FAR - 78
REG - 79
