Exam 14: Audit of the Inventory and Distribution Cycle

Selecting a sample of job orders from the job cost summary and matching them to bills of material and the schedule of production labour requirements is a procedure designed to test the control objective of

You are conducting the audit of Files R Us Inc.(FRI),a family-owned business that manufactures a variety of different wooden and metal file cabinets.In business for over twenty years,FRI has a reputation for providing high-quality products on time or even ahead of schedule.FRI does not sell to the public,but only to fine furniture stores and to a variety of office supply chains. As of the current year-end,the company has a total of $6.3 million in assets.Inventory information is as follows: File cabinet production is intensely competitive,primarily due to imports from Asia and Mexico.To help manage costs,FRI uses a job-order,standard cost system.Standard costs are assessed quarterly.Each job is costed and compared to standard.Inventory is counted only at the end of the year.There is no perpetual inventory system. Due to problems with raw material quality and new staff,losses have been incurred in the last six months of the year.Your review of last year's audit file indicated that there were numerous inventory adjustments required last year. Required: Using the audit risk model,assess the risks associated with the audit of inventory.

The auditor has determined that the perpetual inventory master files are high quality,assessing control risk related to physical observation of inventory as low.How does this affect audit testing? The auditor may

A well-designed computerized system of perpetual inventory data files includes information about the

A common inventory observation procedure is to select a random sample of tag numbers and identify the tag with that number attached to the actual inventory.The audit objective being achieved by this procedure is

The auditor has evaluated the effectiveness of the client's procedures to count inventory,and has provided constructive suggestions for improvement.However,the client has not implemented the suggestions,so the auditor has concluded that the inventory instructions do not provide adequate controls.This means that the auditor

From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories?

The inventory and distribution cycle can be thought of as comprising two separate but closely related systems,one involving the actual physical flow of goods,and the other the

When labour is a significant part of inventory,verifying the proper accounting of these costs should be tested in the

Shipping of finished goods is an integral part of the

State the six functions that make up the inventory and distribution cycle and,for each function,identify the related documents and/or records that would be used by a manufacturing company.

CAS for audit procedures for inventory indicate that the auditor

Receipt of ordered materials by the receiving department will generate the completion of a form called the

The most important part of the observation of inventory is determining whether

Identify three analytical procedures commonly used when auditing accounts in the inventory and distribution cycle.

The controls over purchase requisitions and the related purchase orders are evaluated and tested as part of the

A)Discuss the key control procedures relating to the client's physical count of inventory.B)State the primary determinants of the amount of time needed to perform the physical observation of inventory.

The costs used to value the physical inventory must be tested to determine whether the client has correctly followed an inventory method that is in accordance with an acceptable financial reporting framework and is consistent with previous years.The audit procedures used to verify these costs are referred to as inventory

What are inventory price tests and inventory compilation tests? Provide an example of each.

Which one of the following analytical procedures would be most helpful in alerting the auditor to the possibility of obsolete inventory?