Suppose you're auditing a retail client's year-end inventory count. What steps would you take to verify the reported inventory figures?
RoleConsulting Associate
DifficultyMedium
TopicTechnical
Asked at
Why This Is Asked
For audit roles, Deloitte needs to know you grasp basic audit procedures. Even without real experience, they expect fresh grads to know the theory of inventory observation.
General Approach
Outline the key audit procedures: planning, attending the count, test counts, cutoff, and inquiry. Show that you understand the 'existence' assertion. Use technical terms correctly.
General Answer
Before the count, review the client's counting instructions and identify high-value or high-risk inventory locations to prioritize during the observation. On count day, attend the physical count in person rather than relying only on the client's final tally, and observe whether staff are actually following the documented count procedures. Perform independent test counts in both directions: trace items from the physical floor to the count sheets (checking for completeness, that everything present is recorded) and from the count sheets back to the floor (checking for existence, that everything recorded is actually there). Pay close attention to cutoff around the count date, confirming that goods received or shipped near year-end are recorded in the correct period. Follow up on any variances between your test counts and the client's records with inquiry and additional testing rather than dismissing small differences. Afterward, reconcile the final counted quantities to the general ledger balance and consider whether any inventory should be flagged for obsolescence or valuation issues as a separate assertion beyond existence.
PH Interview Gotcha
Don't just say 'Sisi-miguro lang ako na tama' or rely on common-sense only. Auditing needs specific technical steps. Avoid over-explaining without structure.
Sample STAR Answer▾
S
Situation
In my college auditing class, we simulated an inventory observation for a hypothetical retail company. The data included discrepancies between system records and physical count sheets.
T
Task
I had to design a verification plan that would satisfy the audit objective of existence and accuracy of inventory.
A
Action
First, I reviewed the client's inventory counting instructions. On the hypothetical count day, I planned to observe the counting teams, perform test counts on a random sample of high-value items, and trace them back to the final inventory listing. I also planned to inquire about obsolete or damaged goods and check for proper cutoff of shipments.
R
Result
My plan identified several misstatements: uncounted items in the backroom and wrong unit prices. In our class simulation, this reduced the risk of material misstatement and earned me a high grade for practical application.
Key Takeaway
A structured approach; planning, observation, sampling, and inquiry; can uncover issues that management might overlook.
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