Question

The extent of the auditors' test counts of inventory items should be influenced by the inherent risk of the client's inventory and the adequacy of the client's internal control.

A. True
B. False

Answer 1

True. The extent of auditors' test counts of inventory items is influenced by the inherent risk of the client's inventory and the adequacy of the client's internal control.

Step-by-step explanation:

The statement is true. When auditors are performing inventory counts, they take into account the inherent risk of the client's inventory and the adequacy of the client's internal control. Inherent risk refers to the risk of material misstatements in the financial statements, specifically related to inventory.

The auditors may decide to perform more extensive test counts if they determine that the inherent risk is high, meaning there is a greater chance of errors or fraud in the inventory records. They will also consider the client's internal control measures, such as the segregation of duties and regular inventory reconciliations, to evaluate the reliability of the client's inventory records.