External audit – verification of inventories

 Many companies employ outside service companies that specialize in counting, pricing, extending, and footing inventories. These service companies usually furnish a certificate attesting to the value of the physical inventory.

Required:

Assuming that the service company took the client company’s inventory on the balance sheet date:

a. How much reliance, if any, can the auditors place on the inventory certificate of outside specialists?

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

c. What reference, if any, would the auditors make to the certificate of outside specialists in their audit report?

(AICPA, adapted)

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