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How to test the existence of inventory?

For inventory that is in the company’s possession, the best way to test the existence assertion is to observe the company’s physical inventory observation.

Most companies perform physical inventory observations on the balance sheet date (i.e. December 31st), and the audit team should attend the physical inventory observation.

The audit team should also perform test counts by selecting items from the inventory listing and physically locating the item in the warehouse.

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