physical inventory


physical inventory
1. Audit procedures devised to obtain evidence of the existence, condition, and physical quantities of inventory. The counting of inventory quantities is normally performed on a sample basis, especially when the volume of inventory makes a full count unfeasible. The results of sample counting may be extrapolated to the entire inventory *population, provided that *compliance testing suggests the satisfactory operation of relevant *internal controls. Physical inventory tests may range from counts performed annually to periodic (or *continuous) verifications of the accuracy of *perpetual inventory data, or a combination of the two. Obtaining evidence of the accuracy of inventory balances stated in financial statements has been of immense importance to auditors since the *great salad oil swindle of the early 1960s. 2. Audit procedures devised to obtain evidence of the existence, condition, and physical quantities of *property, plant, and equipment.

Auditor's dictionary. 2014.

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