Question

It is frequently possible to test the physical inventory prior to the balance sheet date whenA.the internal control system is no better at year-end than at an earlier point in time. B.the client counts inventory at interim dates. C.the perpetual inventory records are accurate and related controls operate effectively. D.year-end sales are small.

Answer 1

Answer: C.the perpetual inventory records are accurate and related controls operate effectively

Explanation: When the perpetual inventory records are accurate and related controls operate effectively, it is frequently possible to test the physical inventory prior to the balance sheet date.  An auditor will generally decide whether the inventory count can be taken before year-end primarily on the basis of accuracy of the perpetual inventory master files.