Question 1

List the procedures that should be adopted in a physical inventory count.

Accepted Answer

-Assigning and communicating responsibility for the count.
-Preparation of the area to be counted, including cut-off procedures.
-Clear identification of the inventory to be counted.
-Procedures for the actual count, ideally conducted in pairs.
-Checking procedures for the accuracy of the count.
-Progressive clearing of counted areas by a supervisor.
-Recording the inventory count tags onto the inventory count sheets.
-Follow-up of cut-off procedures to ensure accurate count.

Question 2

The auditor identifies the specific audit objective: "determine that property, plant and equipment (PPE) assets represent productive assets that are in use at balance date". This objective is derived from the:

Accepted Answer

A)  existence assertion. 
B)  completeness assertion. 
C)  presentation and disclosure assertion. 
D)  rights and obligations assertion. 
A)  existence assertion. 
B)  completeness assertion. 
C)  presentation and disclosure assertion. 
D)  rights and obligations assertion. A

Question 3

Identify the appropriate account balance audit objectives applicable to inventories for the assertion categories of:
-existence
-completeness
-rights and obligations
-valuation and allocation
-presentation and disclosure.

Accepted Answer

-existence- inventories included in the balance sheet physically exist.
-completeness - inventories include all materials, products and supplies on hand at balance date.
-rights and obligations - the entity has rights to the inventories included in the balance sheet.
-valuation and allocation - inventories are properly stated at the lower of cost and net realisable value, determined in accordance with applicable accounting standards.
-presentation and disclosure - inventories are properly identified and classified in the financial statements; disclosures relating to the classification, basis of valuation and the pledging of inventories are adequate.

Question 4

Substantiating asset disposals with supporting documentation is a test of details of transactions. Which assertion is most likely satisfied?

Accepted Answer

A)  existence. 
B)  completeness. 
C)  valuation and allocation 
D)  all of the above. 
A)  existence. 
B)  completeness. 
C)  valuation and allocation 
D)  all of the above.

Question 5

When reviewing accumulated depreciation, the auditor seeks evidence as to the reasonableness, consistency and accuracy of depreciation charges. The substantive procedures performed seek to provide evidence for which assertion?

Accepted Answer

A)  valuation. 
B)  completeness. 
C)  rights and obligations. 
D)  presentation and disclosure. 
A)  valuation. 
B)  completeness. 
C)  rights and obligations. 
D)  presentation and disclosure.

Question 6

The auditor's strategy in performing test counts during the inventory observation is to:

Accepted Answer

A)  test all large-dollar items. 
B)  randomly select all test items. 
C)  concentrate tests on high dollar items with random selection of other items. 
D)  concentrate tests in areas where employees seem to be disregarding the inventory instructions. 
A)  test all large-dollar items. 
B)  randomly select all test items. 
C)  concentrate tests on high dollar items with random selection of other items. 
D)  concentrate tests in areas where employees seem to be disregarding the inventory instructions.

Question 7

When performing tests of details of balances for property, plant and equipment, it is necessary for the auditor to review accumulated depreciation. Discuss what this review entails.

Accepted Answer

In this test, the auditor seeks evidence

Question 8

Confirmation of inventories in public warehouses cannot provide evidence concerning the:

Accepted Answer

A)  existence assertion. 
B)  completeness assertion. 
C)  valuation and allocation assertion. 
D)  it cannot provide evidence concerning any of the listed assertions 
A)  existence assertion. 
B)  completeness assertion. 
C)  valuation and allocation assertion. 
D)  it cannot provide evidence concerning any of the listed assertions

Question 9

In a typical audit, verification of the ownership of plant and equipment is least likely to involve examination of:

Accepted Answer

A)  the physical characteristics of the items 
B)  "paid invoices". 
C)  registration certificates. 
D)  property tax bills. 
A)  the physical characteristics of the items 
B)  "paid invoices". 
C)  registration certificates. 
D)  property tax bills.

Question 10

1. Generally, what is the assessment of control risk for transactions relating to property, plant and equipment?
2.Generally, what is the assessment of materiality in relation to property, plant and equipment?
3.Briefly discuss the assessment of inherent risk in relation to property, plant and equipment.

Accepted Answer

1.Because transactions relating to prope

Question 11

Reviewing data pertaining to inventory quality relates primarily to the:

Accepted Answer

A)  occurrence assertion. 
B)  completeness assertion. 
C)  rights and obligations assertion. 
D)  valuation and allocation 
A)  occurrence assertion. 
B)  completeness assertion. 
C)  rights and obligations assertion. 
D)  valuation and allocation

Question 12

The audit strategy that would be most appropriate when an auditor has assessed a predominantly substantive approach is necessary to determine inventory quantity is:

Accepted Answer

A)  inventory quantities determined by physical count at or within a few days of balance date. 
B)  inventory quantities determined by physical count near balance date, adjusted by reference to perpetual records. 
C)  inventory quantities determined by reference to perpetual records, without a physical count at or near balance date. 
D)  none of the above. 
A)  inventory quantities determined by physical count at or within a few days of balance date. 
B)  inventory quantities determined by physical count near balance date, adjusted by reference to perpetual records. 
C)  inventory quantities determined by reference to perpetual records, without a physical count at or near balance date. 
D)  none of the above.

Question 13

Cyclical inventory counts differ from full inventory counts in which way?

Accepted Answer

A)  cyclical inventory counts are performed at balance date. 
B)  cyclical inventory counts are only performed by internal audit. 
C)  cyclical inventory counts may involve counting only a portion of inventory items 
D)  they differ in all of the above ways 
A)  cyclical inventory counts are performed at balance date. 
B)  cyclical inventory counts are only performed by internal audit. 
C)  cyclical inventory counts may involve counting only a portion of inventory items 
D)  they differ in all of the above ways

Question 14

Observation of inventory counts is a required audit procedure whenever:

Accepted Answer

A)  inventories are material. 
B)  it is practicable to do so. 
C)  inventories are material and it is practicable to do so. 
D)  inventories are material and the auditor considers it to be necessary. 
A)  inventories are material. 
B)  it is practicable to do so. 
C)  inventories are material and it is practicable to do so. 
D)  inventories are material and the auditor considers it to be necessary.

Question 15

For each of the following potential misstatements for inventories, identify a necessary control:
1.Failure to record goods received
2.Unreliable count procedures during a physical stocktake
3.Inappropriate basis for determining inventory costs
4.Unauthorised removal of goods from inventory
5.Insufficient extent of comparison between stocktake count and inventory records
6.Inadequate investigation and correction of differences between inventory count and inventory records

Accepted Answer

1.Failure to record goods received
-Use

Question 16

When substantiating disposals of property, plant and equipment, the auditor should be able to find evidence using all of the following except:

Accepted Answer

A)  cash remittance advices. 
B)  written authorisations. 
C)  supplier invoices. 
D)  sales agreements. 
A)  cash remittance advices. 
B)  written authorisations. 
C)  supplier invoices. 
D)  sales agreements.

Question 17

Ensuring inventories include all materials, products and supplies on hand at the end of the reporting period derives from the audit assertion of:

Accepted Answer

A)  completeness 
B)  valuation and allocation. 
C)  existence 
D)  rights and obligations. 
A)  completeness 
B)  valuation and allocation. 
C)  existence 
D)  rights and obligations.

Question 18

Evidence concerning the pledging of property, plant and equipment assets is likely to be obtained through:

Accepted Answer

A)  review of the board minutes. 
B)  confirmation of debt agreements. 
C)  inquiries of management. 
D)  all of the above. 
A)  review of the board minutes. 
B)  confirmation of debt agreements. 
C)  inquiries of management. 
D)  all of the above.

Question 19

Analytical procedures are not widely used in the audit of property, plant and equipment. Which of the following is not a valid comment about the use of analytical procedures in the audit of PPE?

Accepted Answer

A)  compare the annual depreciation charge with the cost of an asset to approximate the depreciation rate. 
B)  a substantial asset balance variation can be caused by one or a few transactions of which the auditor is likely to already be aware. 
C)  comparison of repairs expense with prior years may indicate capitalisation in error. 
D)  none of the above is invalid 
A)  compare the annual depreciation charge with the cost of an asset to approximate the depreciation rate. 
B)  a substantial asset balance variation can be caused by one or a few transactions of which the auditor is likely to already be aware. 
C)  comparison of repairs expense with prior years may indicate capitalisation in error. 
D)  none of the above is invalid

Question 20

When the client engages an inventory specialist to take the inventory, the impact on the audit in this area is:

Accepted Answer

A)  to eliminate the need to perform test counts. 
B)  to eliminate the need to observe the inventory. 
C)  minimal because the specialists are considered independent auditors. 
D)  minimal because the specialists are considered audit employees. 
A)  to eliminate the need to perform test counts. 
B)  to eliminate the need to observe the inventory. 
C)  minimal because the specialists are considered independent auditors. 
D)  minimal because the specialists are considered audit employees.

List the procedures that should be adopted in a physical inventory count.

The auditor identifies the specific audit objective: "determine that property, plant and equipment (PPE) assets represent productive assets that are in use at balance date". This objective is derived from the:

Identify the appropriate account balance audit objectives applicable to inventories for the assertion categories of: -existence -completeness -rights and obligations -valuation and allocation -presentation and disclosure.

Substantiating asset disposals with supporting documentation is a test of details of transactions. Which assertion is most likely satisfied?

When reviewing accumulated depreciation, the auditor seeks evidence as to the reasonableness, consistency and accuracy of depreciation charges. The substantive procedures performed seek to provide evidence for which assertion?

The auditor's strategy in performing test counts during the inventory observation is to:

When performing tests of details of balances for property, plant and equipment, it is necessary for the auditor to review accumulated depreciation. Discuss what this review entails.

Confirmation of inventories in public warehouses cannot provide evidence concerning the:

In a typical audit, verification of the ownership of plant and equipment is least likely to involve examination of:

Reviewing data pertaining to inventory quality relates primarily to the:

The audit strategy that would be most appropriate when an auditor has assessed a predominantly substantive approach is necessary to determine inventory quantity is:

Cyclical inventory counts differ from full inventory counts in which way?

Observation of inventory counts is a required audit procedure whenever:

When substantiating disposals of property, plant and equipment, the auditor should be able to find evidence using all of the following except:

Ensuring inventories include all materials, products and supplies on hand at the end of the reporting period derives from the audit assertion of:

Evidence concerning the pledging of property, plant and equipment assets is likely to be obtained through:

Analytical procedures are not widely used in the audit of property, plant and equipment. Which of the following is not a valid comment about the use of analytical procedures in the audit of PPE?

When the client engages an inventory specialist to take the inventory, the impact on the audit in this area is:

An Overview of Auditing

Governance and the Auditor

Professional Ethics, Independence and Audit Quality

Other Assurance Engagements and Quality Standards

The Auditors Legal Liability

Overview of the Audit Financial Statements

The Auditors Report

Client Evaluation and Planning the Audit

Audit Risk Assessment

Materiality and Audit Evidence

Tests of Controls

Designing Substantive Procedures

Audit Sampling

Auditing Sales and Receivables

Auditing Purchases, Payables and Payroll

Auditing Cash and Investments

Completing the Audit

Filters

Exam 16: Auditing Inventories and Property, Plant and Equipment

List the procedures that should be adopted in a physical inventory count.

The auditor identifies the specific audit objective: "determine that property, plant and equipment (PPE) assets represent productive assets that are in use at balance date". This objective is derived from the:

Identify the appropriate account balance audit objectives applicable to inventories for the assertion categories of: -existence -completeness -rights and obligations -valuation and allocation -presentation and disclosure.

Substantiating asset disposals with supporting documentation is a test of details of transactions. Which assertion is most likely satisfied?

When reviewing accumulated depreciation, the auditor seeks evidence as to the reasonableness, consistency and accuracy of depreciation charges. The substantive procedures performed seek to provide evidence for which assertion?

The auditor's strategy in performing test counts during the inventory observation is to:

When performing tests of details of balances for property, plant and equipment, it is necessary for the auditor to review accumulated depreciation. Discuss what this review entails.

Confirmation of inventories in public warehouses cannot provide evidence concerning the:

In a typical audit, verification of the ownership of plant and equipment is least likely to involve examination of:

Reviewing data pertaining to inventory quality relates primarily to the:

The audit strategy that would be most appropriate when an auditor has assessed a predominantly substantive approach is necessary to determine inventory quantity is:

Cyclical inventory counts differ from full inventory counts in which way?

Observation of inventory counts is a required audit procedure whenever:

When substantiating disposals of property, plant and equipment, the auditor should be able to find evidence using all of the following except:

Ensuring inventories include all materials, products and supplies on hand at the end of the reporting period derives from the audit assertion of:

Evidence concerning the pledging of property, plant and equipment assets is likely to be obtained through:

Analytical procedures are not widely used in the audit of property, plant and equipment. Which of the following is not a valid comment about the use of analytical procedures in the audit of PPE?

When the client engages an inventory specialist to take the inventory, the impact on the audit in this area is:

An Overview of Auditing

Governance and the Auditor

Professional Ethics, Independence and Audit Quality

Other Assurance Engagements and Quality Standards

The Auditors Legal Liability

Overview of the Audit Financial Statements

The Auditors Report

Client Evaluation and Planning the Audit

Audit Risk Assessment

Materiality and Audit Evidence

Tests of Controls

Designing Substantive Procedures

Audit Sampling

Auditing Sales and Receivables

Auditing Purchases, Payables and Payroll

Auditing Cash and Investments

Completing the Audit

Filters