Which procedure can be used to test the accuracy of inventory?

Obtaining direct confirmation of inventory balances is a highly effective procedure for testing the accuracy of inventory. This method involves reaching out to third parties, such as suppliers or warehousing companies, to confirm the quantities and conditions of goods held in inventory. By validating the figures through an independent source, auditors can significantly reduce the risk of misstatement that might arise from management’s reporting.

This direct confirmation provides evidence regarding the existence and valuation of inventory, ensuring that recorded amounts are both accurate and reflect the actual conditions of the inventory held by the entity. In essence, it allows auditors to obtain reliable, objective evidence directly related to inventory, which is crucial for verifying its accuracy in financial statements.

Other options, while related to different auditing procedures, do not directly focus on testing the accuracy of inventory. For example, inspecting supplier correspondence for overdue payments pertains to accounts payable rather than inventory accuracy. Agreeing bonuses with the payroll register relates to payroll accuracy, and discussing management's estimate of provisions involves assessing estimates rather than physical inventory counts. These procedures may serve valuable roles in the audit but do not specifically address the accuracy of inventory itself.