Exam 14: Audit of the Inventory and Distribution Cycle

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?

The overall objective in the audit of the inventory and distribution cycle is to determine that

To detect an overstatement or understatement of inventory and cost of goods sold, the auditor may perform an analytical procedure such as comparing

The audit of the inventory and distribution cycle consists of five parts. State the five parts and, for each part, identify the cycle in which that part is tested by the auditor.

Controls that provide a means of ensuring that the physical counts are properly summarized, priced at the same amount as the unit records, correctly extended and totalled, and included in the general ledger at the proper amount are known as

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

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

When considering pricing of inventory, three things are important. The first two are that the method must be in accordance with an acceptable financial accounting framework, and the application of the method must be consistent from year to year. What is the third?

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

When performing a financial statement audit, auditors are required to explicitly assess the risk of material misstatement due to

XYZ Company uses standard costs for allocating costs to work-in-process and finished goods inventory. What internal control is required with respect to these costs to ensure proper valuation 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

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

A common inventory observation procedure is to record in the working papers for subsequent follow-up the last shipping document number used at year-end. The audit objective being achieved by this procedure is

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.

To protect the inventory, Globus Corp wants to assign the custody of inventory to a specific responsible individual. Globus can accomplish this by

Segregation of duties between production, inventory control, and accounting are important controls in the inventory and distribution cycle. How would the auditor test these controls?

Shipping of finished goods is an integral part of the

An inventory observation procedure that compares physical counts with the perpetual inventory master file is an attempt to satisfy the audit objective of