Chat with AIExam 14: Audit of the Inventory and Distribution Cycle
A)State seven specific balance-related audit objectives for inventory pricing and compilation and,for each objective,describe one common test of details of balances related to that objective.B)Explain why the audit of work-in-process and finished goods inventory is generally more complex than the audit of purchased inventory.
(34) 
VerifiedA)Balance-related audit objectives for inventory pricing and compilation include:
1.Inventory on the inventory listing schedule agrees with the physical inventory counts,the extensions are correct,and the total is correctly added and agrees with the general ledger (allocation).Foot the inventory listing schedules.
2.Inventory items on the inventory listing schedule exist (existence).Trace inventory listed in the schedule to inventory tags and auditor's recorded counts for existence and description.
3.Existing inventory items are included on the inventory listing schedule (completeness).Account for unused tag numbers shown in the auditor's working papers to make sure no tags have been added.
4.Inventory items on the inventory listing schedule are accurate (accuracy).Trace inventory listed in the schedule to inventory tags and auditor's recorded counts for quantity and description.
5.Inventory items on the inventory listing schedule are properly classified (classification).Compare the classification into raw materials,work-in-process,and finished goods by comparing the descriptions on inventory tags and auditor's recorded test counts with the inventory listing schedule.
6.Inventory items on the inventory listing are stated at realizable value (valuation).Perform tests of lower-of-cost-or-market,selling price,and obsolescence.
7.The client has rights to inventory items on the inventory listing schedule (rights).Trace inventory tags identified as non-owned during the physical observation to the inventory listing schedule to make sure these have not been included.
B)The need to verify the cost of raw materials,direct labour,and manufacturing overhead in pricing work-in-process and finished goods has the effect of making the audit of work-in-process and finished goods inventory more complex than the audit of purchased inventory.
Cost accounting controls are those related to the physical inventory and the consequent costs from the point at which
(32) VerifiedB
The auditor's tests of the adequacy of the physical controls over raw materials,work-in-process,and finished goods are usually limited to
(33) VerifiedA
A public accountant observes his client's physical inventory count on December 31.There are eight inventory-taking teams and a tag system is used.The public accountant's observation normally may be expected to result in detection of which of the following inventory errors?
(39) When a physical count of inventory is permitted at an interim date,the auditor observes it at that time,and also tests the perpetual inventory for transactions
(36) If the auditor is appointed after the year-end of the client,the auditor
(33) Which analytical procedures will help an auditor identify possible misstatements in compilation,unit costs,or extensions that affect inventory and cost of goods sold?
(37) Master files,worksheets,and reports that accumulate material,labour,and overhead as the costs are incurred are
(38) A common inventory observation procedure is to be alert for items that are damaged,rust- or dust-covered,or located in inappropriate places.The balance-related audit objective achieved by this procedure is
(44) The client has a perpetual inventory system,and takes an inventory count of 100 items every two weeks for comparison to the perpetual records.There are no plans to have a complete year-end physical count of inventory.How will the auditor conduct the audit of physical inventory?
(30) Reconciling the open production cost reports to the work-in-process inventory control account is a procedure designed to test the control objective of
(37) A useful starting point for becoming familiar with the client's inventory is for the auditor to
(31) To protect the inventory,Globus Corp wants to assign the custody of inventory to a specific responsible individual.Globus can accomplish this by
(42) When auditing merchandise inventory at year-end,the auditor performs a purchase cutoff test to obtain evidence that
(44) State six specific balance-related audit objectives for physical inventory observation and,for each objective,describe one common test of details of balances related to that objective.
(50) Dishware Distribution Limited uses average costing to cost its inventory.It keeps a perpetual inventory file that is linked to its sales systems.It orders inventory in for specific customers as needed,and traditionally has a slow time just before its year-end.Accordingly,inventory at the year-end is about $2000,while materiality is about $30 000.How should the auditor approach the audit of physical inventory?
(42) XYZ Company uses standard costs for allocating costs to work-in-process and finished goods inventory.For the last few months,there have been high variances between total standard costs and actual costs.What is one of the likely reasons for this variance?
(41) An auditor has determined that there is a high risk that her client has overvalued inventory.Which audit assertions would require additional testing?
(23) 
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