Perpetual inventory

It’s not possible to say what is “best” and counts per the perpetual inventory records are only quantities – so cannot “agree with financial statement balances” which are $ amounts.

If a client uses perpetual inventory records as a basis for calculating the inventory amount for the financial statements, the auditor will need to check that “book” quantities are an accurate record of physical quantities. This will be confirmed by test counts of actual against book at the year end – the fact that the client is not performing a “full physical count” does not mean that the auditor cannot do such counts as are considered necessary for audit purposes.

Short answer – no – quite the contrary

In a perpetual inventory system, every goods movement in/out is recorded so inventory quantities are known at all times.

That does not mean that inventory is “perpetually counted” – some items might be counted every day, but some might be counted only weekly – or monthly.

The point is, that if the records are shown to be accurate there is no need to have a full physical count – which costs money (!)

The auditor can’t undertake a full physical count – that would have to be conducted by management – but there’s nothing to stop the auditor counting some items on a sample basis at the reporting date.

You’re welcome!