An auditor is testing the 'Rights and Obligations' assertion for inventory. Which of the following procedures is MOST relevant?

Answer options:

Observing the physical inventory count.

Testing the mathematical accuracy of the inventory listing.

Inquiring of management about inventory held on consignment and reviewing consignment agreements.

Comparing current year inventory turnover to prior year.

How to approach this question

Rights = Ownership. Look for evidence of ownership (titles, deeds) or lack thereof (consignment, collateral).

Full Answer

C.Inquiring of management about inventory held on consignment and reviewing consignment agreements.✓ Correct

Inquiry regarding consignment and review of agreements helps determine if the client actually owns the inventory physically present (Rights assertion).

Common mistakes

Thinking observation proves ownership (it only proves existence).

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