Choice "D" is correct. As part of the process of observing a client's physical inventories, an auditor should be alert to the inclusion of any obsolete or damaged goods, which may need to be written down or written off.
Choice "c" is incorrect. An auditor cannot determine whether there have been changes in pricing methods simply by observing a client's physical inventories.
Choice "b" is incorrect. An auditor cannot determine whether outstanding purchase commitments exist simply by observing a client's physical inventories.
Choice "a" is incorrect. An auditor cannot determine what inventory values are assigned to goods in process simply by observing a client's physical inventories.