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CMA Final · Cost and Management Audit · Audit of Different Service Organisations

While auditing a telecom service provider's cost statements, which feature of services most affects the auditor's approach to inventory verification?

Because services are intangible and cannot be stored, a service provider holds little or no finished inventory. The auditor therefore concentrates on capacity utilisation, cost of delivery and matching of costs to revenue instead of physical stock verification.

  1. AServices are intangible and cannot be stored, so little or no finished inventory existsCorrect
  2. BServices always carry large finished goods stock
  3. CServices are valued only at market price
  4. DServices need no cost records

Explanation

Services are perishable and produced and consumed simultaneously, so there is virtually no finished stock to verify. Audit effort shifts to capacity utilisation, cost of service delivery and revenue-cost matching rather than stock verification.

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