Question

Establishing the completeness of inventories involves which of the following?

a) Ensuring the accuracy of cost amounts of inventories
b) Determining that the presentation and disclosure of inventories and cost of goods sold is adequate
c) Establishing that the client has rights to the recorded inventories
d) Ensuring the existence of ending inventory

Answer 1

Ensuring the completeness of inventories involves verifying the physical presence and valuation of ending inventory. Physical counts are matched with inventory records to reconcile discrepancies, important for accurate financial reporting and fraud prevention.

Step-by-step explanation:

Establishing the completeness of inventories is an essential aspect of accounting and inventory management for a business. Completeness assures that all products that should be accounted for are recorded in the ending inventory. This verification tends to decline when business is better than expected, as more inventory is sold, and it rises when business is inferior due to excess unsold goods. The process includes counting physical inventory, reconciling these counts with inventory records, and investigating any discrepancies.

Ensuring the existence of ending inventory means physically verifying that the goods reported on financial statements are actually present and correctly valued. This step is crucial for accurate financial reporting and helps protect against potential errors, theft, or fraud. Physical counts, which may be done through cycle counting or an annual full inventory count, are typical methods used in this process. These counts are compared against inventory records to ascertain their accuracy and to adjust any misstatements.