Auditors often observe the counting of their clients’ inventories. You are working in the area of inventory with a new assistant on the audit of Jilco Inc. The assistant has a number of questions concerning inventory and the observation of inventory. Please reply “yes” or “no” to answer the following questions. Provide your rationale.
Statement
a. With strong internal control, may Jilco Inc.’s inventory count be performed during the year rather than at year end?
b. Jilco Inc. has inventory at many locations. Do we need to be present for the count at all locations?
c. Must I document all my test counts in the working papers?
d. Am I correct that our observation of the counting of the inventory primarily addresses the existence of inventory, and not the completeness of the count?
e. Is it correct that, since Jilco Inc. manufactures a product, direct labor and overhead ordinarily become a part of inventory costs?
f. Should Jilco’s inventory be valued at the lower of standard cost or market?
g. Is it safe to assume that any inventory items present as “consigned in” should not be included in the clients’ inventory?
h. When I take test counts of items, does this eliminate the need for Jilco Inc. personnel to count those items?
i. Do I need to count all items in the inventory?
j. At the completion of the count, should I leave Jilco Inc. personnel with a copy of all my inventory test counts to help assure inventory accuracy?