Physical inventories in wartime;

              Statements on Auditing Procedure
No. 17
December 1942
•
Issued by the
Physical Inventories in Wartime
Committee on Auditing Procedure, American Institute of Accountants, 13 East 41st Street, New York 17, N. Y.
Copyright 1943 by American Institute of Accountants
THE PROBLEM
AMONG the many problems arising out of the war which particu-
larly affect accounting is the one created by the failure of a
company to make a physical count of its inventory, either all at one time or on a staggered basis throughout the year. Many companies have omitted such physical inventories this year, either voluntarily or by direction of the government, in order not to interrupt neces-sary production of war materials.
The foregoing circumstances raise questions as to (1) what addi-tional or alternative auditing procedures can and should be under-taken to remedy the omission and (2) the effect on the independent accountant's short form of report. If the company does not under-take to make the customary physical count of goods in the inventory, the independent accountant obviously cannot make the usual observation or physical tests thereof in accordance with generally accepted auditing procedure.1 Under these circumstances, to what extent is he justified in relying on alternative procedures to satisfy himself as to the fairness of inventory amounts and what is the effect on the accountant's report? For example:
(a) Is it proper for the independent public accountant to render a report or opinion, with an exception as to the amount of the inventories?
(b) If the inventory is material, would such exception be sufficiently important to require a disclaimer as to the ability to express an opinion on the financial statements as a whole?
Since proper answers to the foregoing questions will depend upon the circumstances in each case, the committee does not here under-take to reach categorical conclusions thereon. It believes that the
1 Statements on Auditing Procedure No. 1, p. 6.
DISCUSSION
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