ICAEW ARF · Chapter 6 · Question 6 of 11
A client uses a perpetual inventory system with continuous counting instead of a full year-end count. Which of the following would be necessary for the auditor to rely on this system?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) All inventory lines are counted at least once a year and discrepancies with the records are investigated and corrected
Explanation
Continuous counting can replace a year-end count if the book records are reliable. This requires all items to be counted during the year, counts to be performed by staff independent of the records and stores, and differences to be investigated and corrected. Counts by the storekeeper or leaving errors uncorrected would undermine reliance on the records.
More Controls over payroll, inventory and cash MCQs
- Q8What is the main purpose of a company preparing a monthly bank reconciliation that is reviewed by someone independent of the cash book?
- Q9Which control over cash received in the post is most effective?
- Q10Which of the following describes an imprest system for petty cash?
- Q11Which of the following controls is most likely to detect 'teeming and lading' by a receivables clerk?
- Q1Which control best reduces the risk of fictitious ('ghost') employees being added to the payroll?