Problem:
Hana Ranch Company, which has never been audited, is asked on October 1 by its bank to arrange for a year-end audit. The company retains you to make this audit and asks what measures, if any, it should take to ensure a satisfactory year-end physical inventory. Perpetual inventories are not maintained. How would you answer this question? List any steps you would ask the client to take, and describe your plan as an auditor as to what you would look for and how you would approach the audit.