Final answer:
To ensure a company's inventory is properly recorded, auditors should review inventory, purchase, and sales records, and observe inventory count processes. The merchandise balance is verified with cost of goods information, while the current account balance requires examining goods and service trades and income payments.
Step-by-step explanation:
To best ascertain that a company has properly included merchandise that it owns in its ending inventory, auditors should review and test the company's inventory records, purchase and sales records, and potentially observe the physical inventory counting processes. To determine the merchandise balance, auditors will check the cost of goods sold, purchases, and beginning inventory figures against the physical inventory at year-end. The current account balance, on the other hand, can be calculated by assessing the trade of goods, services, and income payments, and may require reviewing records surrounding the export and import of merchandise.
Verifying the Merchandise Balance and Current Account Balance
When filling out the relevant tables, such as Table 23.2, Table 9.2, or Table 10.2, the necessity to analyze transactions and balances requires understanding of the company's accounting systems and controls. This includes assessing the proper recognition of purchases and sales, adjustments for returns or damaged goods, and exclusions of items not owned by the company (consignment goods, etc.). The calculation of the merchandise balance involves the aggregation and assessment of goods transactions, whereas the current account balance computation will consider goods, services, and net income payments internationally.
The process acknowledges complexities such as valuation adjustments based on market value or lower of cost or market rules, and foreign currency translation where applicable. Auditors will also consider the timing of revenue recognition and the risks of over- or under-stating inventory due to cut-off errors or fraud.