Question

An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the physical inventory sheets. The purpose of this procedure is to obtain assurance that:

a. the final inventory is valued at cost.
b. all inventory represented by an inventory tag is listed on the inventory sheets.
c. all inventory represented by an inventory tag is bona fide.
d. inventory sheets do not include untagged inventory items.

Answer 1

The auditor is tracing inventory tags to physical inventory sheets to ensure that all tagged inventory items are accurately listed on the inventory sheets, contributing to the integrity of the inventory count.

Step-by-step explanation:

The purpose of an auditor tracing information from inventory tags to physical inventory sheets is to obtain assurance that all inventory represented by an inventory tag is listed on the inventory sheets. This procedure helps to verify the completeness of the inventory records and ensures that each item accounted for by a tag is indeed included in the final inventory count.By tracing information from a representative number of tags to the physical inventory sheets, the auditor can confirm that the inventory recorded is accurate and complete.

An auditor will select a sample of tags and match each with the corresponding item on the inventory list. The main goal is not to assess valuation or authenticity of inventory items directly (though that may be part of other procedures) but to check that the inventory list accurately reflects tagged items. This process contributes to the integrity of the inventory management system and the accuracy of financial statements.