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The observation of a clients physical inventory is a mandatory auditing procedure when possible for the auditors to carry out and when inventories are material.

The observation of a clients physical inventory is a mandatory auditing procedure when possible for the auditors to carry out and when inventories are material.

Required:

a. Why is the observation of physical inventory a mandatory auditing procedure? Explain.

b. Under what circumstances is observation of physical inventory impossible?

c. Why is the auditors review of the clients control of inventory tags important during the observation of physical inventory? Explain.

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