ACCA Audit and Assurance (F8) Practice Exam

What is required for the effective protection of inventory?

1. Regular audits of supplier performance

2. Documented purchase procedures

3. Physical security measures against theft/loss

4. Standard price agreements with suppliers

The correct answer is: Physical security measures against theft/loss

Effective protection of inventory primarily involves implementing physical security measures against theft and loss. This is crucial because inventory represents a significant investment for businesses, and its physical security directly impacts both financial standing and operational efficiency. By enforcing measures such as surveillance systems, secure storage facilities, access controls, and regular security audits, organizations can significantly reduce the risk of inventory being stolen or damaged, thereby safeguarding their assets. While options such as documented purchase procedures, regular audits of supplier performance, and standard price agreements with suppliers may contribute to overall inventory management and cost control, they do not specifically address the physical protection of the inventory itself. For instance, documented purchase procedures help streamline procurement processes but do not prevent inventory from being physically compromised. Similarly, standard price agreements can help manage costs associated with inventory procurement but do not provide any safeguarding against physical loss or damage. Therefore, the emphasis on physical security measures is vital for ensuring that inventory remains intact and secure against various risks.