Question 1

The auditor evaluates the internal transfer of assets and related costs during the

Accepted Answer

A)  acquisition and payments cycle. 
B)  human resources and payroll cycle. 
C)  sales and collection cycle. 
D)  inventory and distribution cycle. 
A)  acquisition and payments cycle. 
B)  human resources and payroll cycle. 
C)  sales and collection cycle. 
D)  inventory and distribution cycle. D

Question 2

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.

Accepted Answer

A)The key control procedures relating to the client's physical count of inventory include proper instructions for the physical count, supervision by responsible personnel, independent internal verification of the counts, independent reconciliations of the physical counts with perpetual inventory master files, and adequate control over count sheets, tags, or computerized records.
B)The primary determinants of the amount of time needed to perform the physical observation of inventory are the adequacy of the internal controls over the physical counts, accuracy of the perpetual inventory master files, total dollar amount and type of inventory, number of different significant inventory locations, nature and extent of misstatements discovered in previous years, and other inherent risk factors.

Question 3

The bias in recording inventory would be toward

Accepted Answer

A)  overstatement. 
B)  understatement. 
C)  increasing share price. 
D)  income smoothing. 
A)  overstatement. 
B)  understatement. 
C)  increasing share price. 
D)  income smoothing. A

Question 4

Which analytical procedures will help an auditor identify possible misstatements in compilation, unit costs, or extensions that affect inventory and cost of goods sold?

Accepted Answer

A)  comparing gross margin percentage with previous years 
B)  comparing unit costs of inventory with previous years 
C)  comparing inventory turnover with previous years 
D)  comparing extended inventory value with previous years 
A)  comparing gross margin percentage with previous years 
B)  comparing unit costs of inventory with previous years 
C)  comparing inventory turnover with previous years 
D)  comparing extended inventory value with previous years

Question 5

If the auditor concludes that the physical controls over inventory are so inadequate that inventory will be difficult to count, the auditor should

Accepted Answer

A)  inquire of management the additional controls that can be put in place to enable a better count to be carried out. 
B)  conduct additional control tests over the pricing and compilation of inventory to obtain a higher degree of accuracy. 
C)  rely on the perpetual inventory master files rather than the physical count. 
D)  expand the observation of physical inventory tests to ensure that an adequate count is carried out. 
A)  inquire of management the additional controls that can be put in place to enable a better count to be carried out. 
B)  conduct additional control tests over the pricing and compilation of inventory to obtain a higher degree of accuracy. 
C)  rely on the perpetual inventory master files rather than the physical count. 
D)  expand the observation of physical inventory tests to ensure that an adequate count is carried out.

Question 6

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

Accepted Answer

A)  comparing gross margin percentage with previous years 
B)  comparing unit costs of inventory with previous years 
C)  comparing inventory turnover with previous years 
D)  comparing current year manufacturing costs with previous years 
A)  comparing gross margin percentage with previous years 
B)  comparing unit costs of inventory with previous years 
C)  comparing inventory turnover with previous years 
D)  comparing current year manufacturing costs with previous years

Question 7

Obtaining an adequate understanding of the client's business is important in physical observation of inventory because

Accepted Answer

A)  it is required by GAAP. 
B)  it will help the auditor in assessing the risk of theft of inventory. 
C)  inventory is normally a significant item. 
D)  inventory varies significantly for different companies. 
A)  it is required by GAAP. 
B)  it will help the auditor in assessing the risk of theft of inventory. 
C)  inventory is normally a significant item. 
D)  inventory varies significantly for different companies.

Question 8

A useful starting point for becoming familiar with the client's inventory is for the auditor to

Accepted Answer

A)  obtain and review industry ratios. 
B)  review accounting theory covering special problems, such as gas and oil accounting, or lease-purchase agreements. 
C)  read the client's Accounting Manual. 
D)  tour the client's facility. 
A)  obtain and review industry ratios. 
B)  review accounting theory covering special problems, such as gas and oil accounting, or lease-purchase agreements. 
C)  read the client's Accounting Manual. 
D)  tour the client's facility.

Question 9

The test of details of balance procedure that requires the auditor to account for unused inventory tag numbers to make sure none have been omitted is an attempt to satisfy the objective of

Accepted Answer

A)  allocation. 
B)  existence. 
C)  completeness. 
D)  accuracy. 
A)  allocation. 
B)  existence. 
C)  completeness. 
D)  accuracy.

Question 10

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

Accepted Answer

A)  inventory as recorded on tags exists (existence). 
B)  existing inventory is counted and tagged (completeness). 
C)  inventory is counted accurately (accuracy). 
D)  inventory is classified correctly (classification). 
A)  inventory as recorded on tags exists (existence). 
B)  existing inventory is counted and tagged (completeness). 
C)  inventory is counted accurately (accuracy). 
D)  inventory is classified correctly (classification).

Question 11

An auditor has determined that there is a high risk that her client has overvalued inventory. Which audit assertions would require additional testing?

Accepted Answer

A)  accuracy and existence 
B)  allocation and accuracy 
C)  accuracy and valuation 
D)  valuation and classification 
A)  accuracy and existence 
B)  allocation and accuracy 
C)  accuracy and valuation 
D)  valuation and classification

Question 12

Discuss the methodology for designing tests of details of balances for inventory.

Accepted Answer

The methodology for designing tests of d

Question 13

If the auditor is appointed after the year-end of the client, the auditor

Accepted Answer

A)  should qualify the audit opinion for the inventory balance and cost of sales. 
B)  could attend a current perpetual inventory count and roll backward with the records. 
C)  should do an inventory count as soon as he is appointed. 
D)  will inquire with management about the inventory count performed at year-end. 
A)  should qualify the audit opinion for the inventory balance and cost of sales. 
B)  could attend a current perpetual inventory count and roll backward with the records. 
C)  should do an inventory count as soon as he is appointed. 
D)  will inquire with management about the inventory count performed at year-end.

Question 14

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

Accepted Answer

A)  receiving report. 
B)  materials requisition. 
C)  bill of lading. 
D)  inventory acquisition summary. 
A)  receiving report. 
B)  materials requisition. 
C)  bill of lading. 
D)  inventory acquisition summary.

Question 15

The auditor is determining which specific inventory items should be selected for pricing tests. The auditor has selected a representative sample, and those items that have a large dollar amount. In addition, the auditor should select those items that

Accepted Answer

A)  are prone to breakage or theft. 
B)  have wide fluctuations in price. 
C)  are stored in multiple locations. 
D)  are likely to have been miscounted during the inventory count. 
A)  are prone to breakage or theft. 
B)  have wide fluctuations in price. 
C)  are stored in multiple locations. 
D)  are likely to have been miscounted during the inventory count.

Question 16

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

Accepted Answer

A)  inventory and distribution cycle. 
B)  acquisitions and payments cycle. 
C)  human resources and payroll cycle. 
D)  capital acquisitions cycle. 
A)  inventory and distribution cycle. 
B)  acquisitions and payments cycle. 
C)  human resources and payroll cycle. 
D)  capital acquisitions cycle.

Question 17

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.

Accepted Answer

The six functions are:
1.Process purchas

Question 18

The auditor's tests of the adequacy of the physical controls over raw materials, work-in-process, and finished goods are usually limited to

Accepted Answer

A)  observation and inquiry. 
B)  inspection and observation. 
C)  inspection and confirmation. 
D)  inspection and inquiry. 
A)  observation and inquiry. 
B)  inspection and observation. 
C)  inspection and confirmation. 
D)  inspection and inquiry.

Question 19

The auditor has determined that the inventory procedures are highly automated with limited use of a paper or physical trail. Rather than having people count inventory (since all inventory has RFID tags attached), inventory is being read using the wireless mesh network. To provide assurance with respect to ending inventory, the auditor should

Accepted Answer

A)  bring in additional audit staff and conduct a high level of test counts, matching these counts to the automated systems. 
B)  use dollar-unit sampling to identify all high-dollar inventory items and ask the client to physically count these items using count teams. 
C)  test the quality of the controls over the programs in use and over tagging inventory items. 
D)  request that the client implement manual rotating counts to test the quality of the automated systems. 
A)  bring in additional audit staff and conduct a high level of test counts, matching these counts to the automated systems. 
B)  use dollar-unit sampling to identify all high-dollar inventory items and ask the client to physically count these items using count teams. 
C)  test the quality of the controls over the programs in use and over tagging inventory items. 
D)  request that the client implement manual rotating counts to test the quality of the automated systems.

Question 20

Which of the following is correct relating to "fraud risk factor"?

Accepted Answer

A)  it may affect the auditors assessment of risks relating to fraud 
B)  if it involves senior management, it will result in resignation of the auditor 
C)  it is also a material weakness in internal control 
D)  the planned audit procedures would require modifications 
A)  it may affect the auditors assessment of risks relating to fraud 
B)  if it involves senior management, it will result in resignation of the auditor 
C)  it is also a material weakness in internal control 
D)  the planned audit procedures would require modifications

The auditor evaluates the internal transfer of assets and related costs during 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 bias in recording inventory would be toward

Which analytical procedures will help an auditor identify possible misstatements in compilation, unit costs, or extensions that affect inventory and cost of goods sold?

If the auditor concludes that the physical controls over inventory are so inadequate that inventory will be difficult to count, the auditor should

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

Obtaining an adequate understanding of the client's business is important in physical observation of inventory because

A useful starting point for becoming familiar with the client's inventory is for the auditor to

The test of details of balance procedure that requires the auditor to account for unused inventory tag numbers to make sure none have been omitted is an attempt to satisfy the objective of

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

An auditor has determined that there is a high risk that her client has overvalued inventory. Which audit assertions would require additional testing?

Discuss the methodology for designing tests of details of balances for inventory.

If the auditor is appointed after the year-end of the client, the auditor

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

The auditor is determining which specific inventory items should be selected for pricing tests. The auditor has selected a representative sample, and those items that have a large dollar amount. In addition, the auditor should select those items that

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

The auditor's tests of the adequacy of the physical controls over raw materials, work-in-process, and finished goods are usually limited to

Which of the following is correct relating to "fraud risk factor"?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 14: Audit of the Inventory and Distribution Cycle

The auditor evaluates the internal transfer of assets and related costs during 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 bias in recording inventory would be toward

Which analytical procedures will help an auditor identify possible misstatements in compilation, unit costs, or extensions that affect inventory and cost of goods sold?

If the auditor concludes that the physical controls over inventory are so inadequate that inventory will be difficult to count, the auditor should

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

Obtaining an adequate understanding of the client's business is important in physical observation of inventory because

A useful starting point for becoming familiar with the client's inventory is for the auditor to

The test of details of balance procedure that requires the auditor to account for unused inventory tag numbers to make sure none have been omitted is an attempt to satisfy the objective of

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

An auditor has determined that there is a high risk that her client has overvalued inventory. Which audit assertions would require additional testing?

Discuss the methodology for designing tests of details of balances for inventory.

If the auditor is appointed after the year-end of the client, the auditor

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

The auditor is determining which specific inventory items should be selected for pricing tests. The auditor has selected a representative sample, and those items that have a large dollar amount. In addition, the auditor should select those items that

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

The auditor's tests of the adequacy of the physical controls over raw materials, work-in-process, and finished goods are usually limited to

Which of the following is correct relating to "fraud risk factor"?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters