Exam 14: Audit of the Inventory and Distribution Cycle

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 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

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

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

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

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

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

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

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

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: Raw materials (metals and supplies) $ 400 000 Raw materials (wood products) 450 000 Work in progress 1 350 000 Finished goods 250 000 $2 450 000 Finished goods consists of: Material 48% Direct labour 22 Overhead 30 100% 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.

Cost accounting controls are those related to the physical inventory and the consequent costs from the point at which

The test of details of balance procedure that requires the auditor to perform tests of lower-of-cost-or-market, selling price, and obsolescence is an attempt to satisfy the objective of

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

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.

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

Shipping of finished goods is an integral part of the

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?

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

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?

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?