Certified Government Auditing Professional (CGAP) Practice Exam

Which statement represents the best audit objective?

1. To observe the physical inventory count

2. To determine whether inventory stocks are sufficient to meet projected sales

3. To search for the existence of obsolete inventory

4. To include information about "stockouts" in the final audit report

The correct answer is: To determine whether inventory stocks are sufficient to meet projected sales

The best audit objective in this case is to determine whether inventory stocks are sufficient to meet projected sales. This objective is fundamentally aligned with the overall goals of an audit, which typically aim to assess the effectiveness and efficiency of an organization's operations, ensure compliance with policies, and evaluate risk management procedures. By focusing on inventory sufficiency in relation to projected sales, the audit not only evaluates the organization’s ability to meet customer demand but also assesses the financial implications of inventory levels. A comprehensive understanding of inventory sufficiency helps ensure that the organization can avoid potential lost sales due to stockouts, optimize inventory turnover, and manage associated carrying costs. The other options, while they hold some relevance, do not encapsulate the broader implications of effective inventory management. Observing a physical inventory count is a procedural step, searching for obsolete inventory addresses a specific risk but doesn’t focus on overall inventory sufficiency, and including information about "stockouts" in the final report is a reporting function rather than an objective itself. Thus, the focus of an audit should ideally align with the strategic objectives of inventory management and customer satisfaction, making the determination of inventory sufficiency the most beneficial audit objective in this context.