For the company identified in Problem 7-45, assume that the company has an internal audit department that makes periodic test counts of inventory and management adjusts the inventory records to the test counts.

Required

a. What factors should the auditor consider in determining whether or not to rely on the work performed by the internal auditor?

b. If the internal auditor was doing a great job regarding inventory, what would the auditor expect to see with respect to (i) the pattern of the control failures found in Problem 45, (ii) recommendations made by the internal auditor to management, and (iii) responses by management?

c. Assume the following two scenarios:

• The internal auditor's work on inventory consists primarily of making the test counts and seeing that the inventory is adjusted for differences.

• The internal auditor's work meets all the criteria you have identified in part (b).

Explain how the two scenarios would affect the amount of direct testing of inventory the auditor should plan on performing.