physical and visual verification by inspection of financial statement items or activities. The external auditor observes and evaluates how company employees conduct a variety of accounting related tasks such as documenting the existence and valuation of assets, safeguarding assets, approving expense accounts, and counting inventory. Observation tests may be conducted for substantive reasons, such as observing inventory, and for compliance purposes, such as the segregation of duties. However, an observation test does not require detailed physical inspection or examination of documentation. Depending on what is being tested and the method being used, the observation test may be performed by other than accounting personnel.