Inventories and receivables of department stores, instalment houses, chain stores, and other retailers

              Statements on Auditing Procedure
February 1940
No. 3
Issued by the Committee on Auditing Procedure, American Institute of Accountants, 13 East 41st Street, New York, N. Y.
Inventories and Receiva-bles of Department Stores, Instalment Houses, Chain Stores, and Other Retailers
Copyright 1941 by American Institute of Accountants
Query: Is it practicable and reasonable to observe the taking of inventories and to communicate directly with debtors, as added auditing procedures in the examination of the financial statements of department stores, instalment houses, chain stores, and other retailers?
THE REPORT of the American Institute of Accountants dealing with extensions of auditing procedure indicates that, where "practica-ble and reasonable," observation of the taking of inventories and direct communication with debtors are to be considered "generally ac-cepted auditing procedures," meaning that they are normal, usual, or customary. The conjunction "and" is used; the procedures must be both practicable and reasonable. If they are both, their application cannot be avoided. Their omission under such circumstances necessi-tates a clear-cut exception.
On the other hand, if these procedures are not practicable and reasonable in the circumstances of a given engagement, and if the auditor has otherwise satisfied himself, he need make no exception or explanation in his report. Under such circumstances, however, if he prefers to do so, he may make any explanation he sees fit.
The primary meaning of "practicable" is:
"capable of being put into practice, done, or effected, especially with the available means or with reason or prudence."
The primary meaning of "reasonable" is:
"endowed with reason, or rational, having or exercising sound judg-ment, or sensible."
Rarely is a procedure impossible or incapable of being put into practice, but it seems that the auditor may view "practicable" in the light of "with the available means," or "with reason or prudence." The operations may be practicable, but they may not be reasonable, i.e., not "sensible" in the light of surrounding circumstances. Not-withstanding these refinements in meaning, it is believed that there
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