Often an important aspect of a CPA's examination of financial statements is his observation of the taking of the physical inventory.

Required:

a. What are the general objectives or purposes of the CPA's observation of the taking of the physical inventory? (Do not discuss the procedures or techniques involved in making the observation.)

b. For what purposes does the CPA make and record test counts of inventory quantities during his observation of the taking of the physical inventory? Discuss.

c. A number of companies employ outside service companies which specialize in counting, pricing, extending and footing inventories. These service companies usually furnish a certificate attesting to the value of the inventory.

Assuming that the service company took the inventory on the balance sheet date, 1. How much reliance, if any, can the CPA place on the inventory certificate of outside specialists? Discuss.

2. What effect, if any, would the inventory certificate of outside specialists have upon the type of report the CPA would render? Discuss.

3. What reference, if any, would the CPA make to the certificate of outside specialists in his audit report?