Which of the following techniques is the most relevant when an internal auditor conducts a valuation of an organization's physical assets?

Inspection is the most relevant technique because it involves the physical examination of tangible assets. This allows the internal auditor to directly assess the asset's current physical condition, identify any wear and tear, damage, or signs of obsolescence. This firsthand information about the asset's state is a critical input for determining its fair market value or net realizable value, which are central to a valuation exercise. While other techniques may verify an asset's cost or existence, inspection provides direct evidence of the physical attributes that determine its present worth.

A. Observation: This technique involves watching a process. While it can confirm an asset is in use, it is less thorough than inspection for assessing the detailed physical condition required for valuation.

C. Original cost: This is an accounting basis or a data point from the financial records, not an audit technique for conducting a current valuation. It reflects historical value, not present worth.

D. Vouching: This technique verifies the recorded historical cost by tracing it back to source documents like invoices. It substantiates the cost basis but does not determine the asset's current value.

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1. The Institute of Internal Auditors (IIA). (2017). International Professional Practices Framework (IPPF). Standard 2310: Identifying Information. The associated Implementation Guidance lists "Physical examination (inspection)" as a primary procedure for gathering information. It notes that this technique provides evidence about the existence and

crucially for valuation

the condition of tangible assets.

2. Arens

A. A.

Elder

R. J.

& Beasley

M. S. (2020). Auditing and Assurance Services: An Integrated Approach (17th ed.). Pearson Education. In Chapter 7

"Audit Evidence

" the authors define "Physical Examination" as the inspection or count by the auditor of a tangible asset. They explicitly state this type of evidence is most often associated with verifying the existence and condition of assets.

3. Pickett

K. H. S. (2019). The Internal Audit Handbook (4th ed.). Wiley. Chapter 14

"Audit testing and evidence

" describes physical inspection as the definitive method for confirming the condition of a tangible asset. This assessment of condition is a fundamental prerequisite for any valuation model that aims to establish a value other than the original historical cost.