Which method is described as testing inventory quantity through continuous records counting items periodically over the year?

Which method is described as testing inventory quantity through continuous records counting items periodically over the year?

• A. Year-end count
• B. Interim count with follow through of movements in and out to year end
• C. Continuous inventory records - each item counted periodically at some point over year
• D. Spot check during year

Answer: (C)

This approach relies on keeping ongoing stock records and counting items at intervals throughout the year to confirm quantities recorded in those perpetual records. In a continuous or perpetual inventory system, movements such as purchases and sales are recorded as they occur, so the inventory quantities are kept up to date. The auditor then performs periodic counts to verify that what’s on the books matches what’s physically present, selecting items across locations or categories to test accuracy and existence. Why this is the best fit: it provides evidence across the year rather than relying on a single year-end snapshot. Periodic counts tied to continuous records help detect discrepancies sooner, support the integrity of internal controls over inventory movements, and make year-end reporting more reliable. It also allows the auditor to plan testing efficiently, focusing on areas with higher risk while relying on the ongoing records for most of the evidence. In contrast, a year-end count relies on a single date, which misses movements occurring during the year. An interim count with movements traced to year-end still involves a snapshot rather than continuous verification. A spot check during the year tests only a small sample at one time and doesn’t provide ongoing corroboration of the stock records.

This approach relies on keeping ongoing stock records and counting items at intervals throughout the year to confirm quantities recorded in those perpetual records. In a continuous or perpetual inventory system, movements such as purchases and sales are recorded as they occur, so the inventory quantities are kept up to date. The auditor then performs periodic counts to verify that what’s on the books matches what’s physically present, selecting items across locations or categories to test accuracy and existence.

Why this is the best fit: it provides evidence across the year rather than relying on a single year-end snapshot. Periodic counts tied to continuous records help detect discrepancies sooner, support the integrity of internal controls over inventory movements, and make year-end reporting more reliable. It also allows the auditor to plan testing efficiently, focusing on areas with higher risk while relying on the ongoing records for most of the evidence.

In contrast, a year-end count relies on a single date, which misses movements occurring during the year. An interim count with movements traced to year-end still involves a snapshot rather than continuous verification. A spot check during the year tests only a small sample at one time and doesn’t provide ongoing corroboration of the stock records.