An auditor is testing the rights and obligations assertion for a nonissuer's inventory. The auditor notes that a significant portion of inventory is segregated in the warehouse. Which of the following inquiries is MOST relevant?

Answer options:

Is this inventory obsolete?

Is this inventory held on consignment for a third party?

Was this inventory counted in the physical count?

Is this inventory insured?

How to approach this question

Rights & Obligations = Do we own it? Segregated goods are often 'Not Ours' (Consignment In) or 'Sold but holding' (Bill and Hold).

Full Answer

B.Is this inventory held on consignment for a third party?✓ Correct

Segregated inventory often indicates goods held on consignment (owned by others) or goods that have been sold but not yet shipped (bill and hold). Asking about consignment directly addresses the Rights assertion (does the client own it?).

Common mistakes

Focusing on Valuation (Obsolete) instead of Rights.

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