Question

Rights and obligations is one of the general assertions regarding a client's inventory balance. Which of the following is not a substantive auditing procedure related to this assertion?

A)Confirmation of inventory held by third parties.
B)Inspection of purchase invoices and receiving reports.
C)Examination of title documents for owned inventory.
D)Observation of the client's physical inventory count procedures.

Answer 1

Observation of the client's physical inventory count procedures is not a substantive auditing procedure related to the rights and obligations assertion but instead is related to the existence and completeness of inventory.

Step-by-step explanation:

In auditing the inventory balance of a client, auditors must assess whether the client has the rights and obligations over their reported inventory. The substantive auditing procedures for verifying these assertions include:

• Confirmation of inventory held by third parties to ensure that the client has rights to the inventory.
• Inspection of purchase invoices and receiving reports to confirm the client's obligations and ownership over the recorded inventory.
• Examination of title documents for owned inventory to provide evidence of the client's rights over the inventory.

However, D) Observation of the client's physical inventory count procedures is not a direct substantive procedure related to the rights and obligations assertion but rather pertains to the existence and completeness of inventory.