GHI Ltd. is engaged in investment and manufacturing activities. During audit, the auditor performed inspection procedures in the following areas:…

CA Intermediate · Auditing and Ethics · MTP · May 2026
GHI Ltd. is engaged in investment and manufacturing activities. During audit, the auditor performed inspection procedures in the following areas: Examined share certificates held by the company as evidence of investments.Inspected executed sales contracts to evaluate revenue recognition policies.Physically verified plant and machinery at the factory.Reviewed internally generated invoices to verify sales transactions. Based on above, which of the following is the most appropriate audit conclusion regarding inspection as an audit procedure?
(A) Inspection of share certificates conclusively establishes existence, ownership, and valuation of investments.
(B) Inspection of executed contracts provides sufficient appropriate audit evidence regarding revenue recognition without need for further procedures.
(C) Physical inspection of plant and machinery provides evidence of existence, but additional procedures may be required for ownership and valuation.
(D) Inspection of internally generated invoices provides more reliable audit evidence than external confirmations.

Suggested Answer and Working Notes:

Correct Answer: Option (C)

Physical inspection of plant and machinery provides evidence of existence, but additional procedures may be required for ownership and valuation.

Topics: Audit Evidence, Audit of Items of Financial Statements

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