Question 1

The physical observation of the inventory and the acquisition of raw materials are part of the inventory and warehousing cycle.

Accepted Answer

A) True 
 B)False  False

Question 2

The audit procedure "Perform tests of lower-of-cost-or-market, selling price, and obsolescence" provides assurance mainly for the realizable value objective for inventory pricing and compilation.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following controls would be appropriate regarding the release of materials from a stockroom?

Accepted Answer

A) Production employees request materials be delivered to their work areas as they need them. 
B) Stockroom employees deliver materials to work areas throughout the day to maintain acceptable levels of safety stock - no written records are maintained. 
C) Production employees submit approved requisition forms to the stockroom for materials needed. 
D) Production employer in need of materials should personally pick up needed materials from the stockroom. 
A) Production employees request materials be delivered to their work areas as they need them. 
B) Stockroom employees deliver materials to work areas throughout the day to maintain acceptable levels of safety stock - no written records are maintained. 
C) Production employees submit approved requisition forms to the stockroom for materials needed. 
D) Production employer in need of materials should personally pick up needed materials from the stockroom. C

Question 4

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

Accepted Answer

A) standard cost controls. 
B) pricing internal controls. 
C) compilation internal controls. 
D) count quantity internal controls. 
A) standard cost controls. 
B) pricing internal controls. 
C) compilation internal controls. 
D) count quantity internal controls.

Question 5

To assure proper segregation of duties, who should maintain the perpetual inventory master files?

Accepted Answer

A) Production personnel 
B) Inventory storeroom personnel 
C) Inventory receiving personnel 
D) Accounting department personnel 
A) Production personnel 
B) Inventory storeroom personnel 
C) Inventory receiving personnel 
D) Accounting department personnel

Question 6

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 item.The audit objective being achieved by this procedure is:

Accepted Answer

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

Question 7

The audit procedure "Account for unused tag numbers shown in the auditor's working papers to make sure no tags have been added" provides assurance mainly for the existence objective for inventory pricing and compilation.

Accepted Answer

A) True 
 B)False

Question 8

Management typically allocates overhead using total raw materials as the basis for the allocation.

Accepted Answer

A) True 
 B)False

Question 9

A major source of cutoff information for sales and purchases of inventory is:

Accepted Answer

A) confirmations from outside parties. 
B) the test of details of balances. 
C) physical observation. 
D) the performance of analytical procedures. 
A) confirmations from outside parties. 
B) the test of details of balances. 
C) physical observation. 
D) the performance of analytical procedures.

Question 10

Which of the following is an accurate statement regarding inventory and risk?

Accepted Answer

A) Inventory with a high business risk includes products with potential obsolescence. 
B) Auditors often have a greater concern for misstatements when inventory is stored in one warehouse. 
C) Inherent risk is generally set at low for manufacturing companies. 
D) Performance materiality for inventory is determined before assessing client business risk. 
A) Inventory with a high business risk includes products with potential obsolescence. 
B) Auditors often have a greater concern for misstatements when inventory is stored in one warehouse. 
C) Inherent risk is generally set at low for manufacturing companies. 
D) Performance materiality for inventory is determined before assessing client business risk.

Question 11

When auditing manufacturing overhead costs assigned to inventory, auditors should keep in mind that:

Accepted Answer

A) GAAP has strict procedures that must be followed when assigning overhead to work-in-process inventory. 
B) overhead costs must be allocated to raw materials, work-in-process, and finished goods inventory. 
C) management typically allocates overhead using total direct labor dollars as the basis for the allocation. 
D) determining the reasonableness of the allocation method is relatively simple for work-in-process inventory. 
A) GAAP has strict procedures that must be followed when assigning overhead to work-in-process inventory. 
B) overhead costs must be allocated to raw materials, work-in-process, and finished goods inventory. 
C) management typically allocates overhead using total direct labor dollars as the basis for the allocation. 
D) determining the reasonableness of the allocation method is relatively simple for work-in-process inventory.

Question 12

Assume that the client's valuation of an inventory item is $10 per unit for 1,000 units, using first-in, first-out (FIFO).If the most recent acquisition of inventory was for 600 units at $10 per unit and the immediately preceding acquisition was for 700 units at $9 per unit, the inventory item is in error and it is:

Accepted Answer

A) understated $400. 
B) understated $300. 
C) overstated $400. 
D) overstated $700. 
A) understated $400. 
B) understated $300. 
C) overstated $400. 
D) overstated $700.

Question 13

Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.

Accepted Answer

An auditor's physical examination of inv

Question 14

State the six functions that make up the inventory and warehousing 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:
•Process purchase

Question 15

Inherent risk is typically assessed at a low level for inventory due to the nature of the asset.

Accepted Answer

A) True 
 B)False

Question 16

An auditor must inquire about consigned or customer inventory included on the client's premises to satisfy the balance-related audit objective of:

Accepted Answer

A) cutoff. 
B) classification. 
C) rights. 
D) completeness. 
A) cutoff. 
B) classification. 
C) rights. 
D) completeness.

Question 17

When the client's perpetual inventory master files are inadequate, the auditor will probably choose to test the physical inventory prior to the balance sheet date.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) withdraw from the engagement. 
B) issue a qualified audit report. 
C) conduct expanded observation tests of physical inventory. 
D) hire a specialist to assist the auditor. 
A) withdraw from the engagement. 
B) issue a qualified audit report. 
C) conduct expanded observation tests of physical inventory. 
D) hire a specialist to assist the auditor.

Question 19

To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditor should review and test the:

Accepted Answer

A) terms of the open purchase orders. 
B) purchase cutoff procedures. 
C) contractual commitments made by the purchasing department. 
D) purchase invoices received on or around year-end. 
A) terms of the open purchase orders. 
B) purchase cutoff procedures. 
C) contractual commitments made by the purchasing department. 
D) purchase invoices received on or around year-end.

Question 20

To test for proper sales cutoff, an auditor would obtain the number of the last bill of lading issued during the period under audit and verify that the item shipped had been excluded from the inventory listing.

Accepted Answer

A) True 
 B)False

Exam 21: Audit of the Inventory and Warehousing Cycle

The physical observation of the inventory and the acquisition of raw materials are part of the inventory and warehousing cycle.

The audit procedure "Perform tests of lower-of-cost-or-market, selling price, and obsolescence" provides assurance mainly for the realizable value objective for inventory pricing and compilation.

Which of the following controls would be appropriate regarding the release of materials from a stockroom?

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

To assure proper segregation of duties, who should maintain the perpetual inventory master files?

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 item.The audit objective being achieved by this procedure is:

The audit procedure "Account for unused tag numbers shown in the auditor's working papers to make sure no tags have been added" provides assurance mainly for the existence objective for inventory pricing and compilation.

Management typically allocates overhead using total raw materials as the basis for the allocation.

A major source of cutoff information for sales and purchases of inventory is:

Which of the following is an accurate statement regarding inventory and risk?

When auditing manufacturing overhead costs assigned to inventory, auditors should keep in mind that:

Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.

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

Inherent risk is typically assessed at a low level for inventory due to the nature of the asset.

An auditor must inquire about consigned or customer inventory included on the client's premises to satisfy the balance-related audit objective of:

When the client's perpetual inventory master files are inadequate, the auditor will probably choose to test the physical inventory prior to the balance sheet date.

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

To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditor should review and test the:

To test for proper sales cutoff, an auditor would obtain the number of the last bill of lading issued during the period under audit and verify that the item shipped had been excluded from the inventory listing.

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

Filters