Question One

In a Statement on Auditing Standards, the American Institute of Certified Public Accountants observed that when the independent auditor has not satisfied himself as to inventories in the possession of the client, tests of the accounting records alone will not be sufficient for him to become satisfied as to quantities

a) Explain the main reasons why the quantities of stocks and work in progress owned by a business at the year-end cannot be verified by the auditor from accounting records alone.

b) Discuss the steps to be taken by an auditor to ascertain that the proper amounts of debtors and creditors have been included in the balance sheet

c) VERIFICATION OF BALANCE SHEET ITEMS

Examine how an independent auditor would avoid any liability for negligence in the verification of stock in trade.