ACCA Audit and Assurance (F8) Practice Exam

Why is regular inventory stocktaking important?

1. To ensure expenditure is minimized

2. To confirm the accuracy of recorded quantities

3. To establish supplier credibility

4. To analyze sales trends over time

The correct answer is: To confirm the accuracy of recorded quantities

Regular inventory stocktaking is critically important for confirming the accuracy of recorded quantities. This process involves physically counting the inventory and comparing it against the records in the accounting system. By doing this, a company can identify discrepancies caused by various factors, such as theft, loss, damage, or errors in record-keeping. Ensuring accurate inventory records is essential for reliable financial reporting and effective inventory management. It directly impacts the costing of goods sold, the valuation of inventory on the balance sheet, and ultimately the profitability of the company. Inaccurately recorded inventories can lead to poor business decisions and affect cash flow, making it vital for businesses to regularly verify their inventory levels. Other options, while they may touch on relevant aspects of inventory management, do not directly address the fundamental need to maintain accurate inventory records in the context of stocktaking. Thus, the focus on confirming the accuracy of recorded quantities stands out as the primary rationale for conducting regular inventory stocktaking.