Question 1

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

Accepted Answer

A) units of inventory purchased, sold, and on hand. 
B) unit costs of inventory purchased, sold, and on hand. 
C) units of raw materials, work-in-process, and finished goods. 
D) units and unit costs of inventory purchased, sold, and on hand. 
A) units of inventory purchased, sold, and on hand. 
B) unit costs of inventory purchased, sold, and on hand. 
C) units of raw materials, work-in-process, and finished goods. 
D) units and unit costs of inventory purchased, sold, and on hand.

Question 2

Inventory compilation tests are used to verify that the inventory is recorded at the lower of cost or market.

Accepted Answer

A) True 
 B)False

Question 3

An auditor selects a random sampling of tag numbers and identifies the tag with that number attached to the actual inventory.The purpose of the procedure is to:

Accepted Answer

A) obtain proper cutoff information. 
B) uncover the inclusion of nonexistent items as inventory. 
C) to determine if the client has adequately priced the inventory item. 
D) to verify that the client has not changed the recorded counts after the auditor left the premises. 
A) obtain proper cutoff information. 
B) uncover the inclusion of nonexistent items as inventory. 
C) to determine if the client has adequately priced the inventory item. 
D) to verify that the client has not changed the recorded counts after the auditor left the premises.

Question 4

Which of the following statements is correct regarding the auditor's responsibility with respect to the year-end inventory procedures of an audit client?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 5

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

Accepted Answer

A) True 
 B)False

Question 6

A comparison of the current year's inventory turnover ratio with previous years' may indicate the presence of obsolete inventory.

Accepted Answer

A) True 
 B)False

Question 7

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.

Accepted Answer

A) cutoff 
B) accuracy 
C) nature 
D) extent 
A) cutoff 
B) accuracy 
C) nature 
D) extent

Question 8

Auditing standards recommend that auditors observe physical inventory counts by the client.

Accepted Answer

A) True 
 B)False

Question 9

The auditor's tour of the client's inventory facilities should be led by:

Accepted Answer

A) a member of the audit committee. 
B) the CFO. 
C) a plant supervisor. 
D) the company president. 
A) a member of the audit committee. 
B) the CFO. 
C) a plant supervisor. 
D) the company president.

Question 10

The audit of the inventory and warehousing 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.

Accepted Answer

The five parts are:
•Acquire and record

Question 11

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of:

Accepted Answer

A) audit efficiency. 
B) accuracy of the perpetual inventory master files. 
C) client convenience. 
D) audit staff availability. 
A) audit efficiency. 
B) accuracy of the perpetual inventory master files. 
C) client convenience. 
D) audit staff availability.

Question 12

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?

Accepted Answer

A) The cycle basis is used for physical counts. 
B) Supplies of relatively little value are expensed when purchased. 
C) Perpetual inventory records are maintained only for items of significant value. 
D) The storekeeper is responsible for maintenance of perpetual inventory records. 
A) The cycle basis is used for physical counts. 
B) Supplies of relatively little value are expensed when purchased. 
C) Perpetual inventory records are maintained only for items of significant value. 
D) The storekeeper is responsible for maintenance of perpetual inventory records.

Question 13

The main difference between job order and process costing systems is that:

Accepted Answer

A) one accumulates costs by materials issued and the other by labor incurred. 
B) one accumulates costs by individual jobs and the other by particular processes. 
C) one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process. 
D) one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence. 
A) one accumulates costs by materials issued and the other by labor incurred. 
B) one accumulates costs by individual jobs and the other by particular processes. 
C) one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process. 
D) one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence.

Question 14

The most important part of the observation of inventory is to determine whether:

Accepted Answer

A) all counts are accurate. 
B) the inventory-takers are qualified. 
C) obsolete inventory has been identified. 
D) the physical count is being taken in accordance with the client's instructions. 
A) all counts are accurate. 
B) the inventory-takers are qualified. 
C) obsolete inventory has been identified. 
D) the physical count is being taken in accordance with the client's instructions.

Question 15

McKesson & Robbins Company is a well-known audit case involving auditor responsibility.What occurred at the McKesson & Robbins Company to change the way in which auditors audit inventory?

Accepted Answer

A) The company recorded nonexistent inventory. 
B) The auditor did not perform any audit tests of the inventory. 
C) The auditor and company colluded to overstate inventory balances. 
D) The company counted inventory three months prior to year-end. 
A) The company recorded nonexistent inventory. 
B) The auditor did not perform any audit tests of the inventory. 
C) The auditor and company colluded to overstate inventory balances. 
D) The company counted inventory three months prior to year-end.

Question 16

In the audit of inventory, the auditor and client are jointly responsible for making and recording the count of physical inventory; while the auditor is responsible for drawing conclusions about the adequacy of the physical inventory.

Accepted Answer

A) True 
 B)False

Question 17

In most manufacturing companies, the inventory and warehousing cycle begins with the:

Accepted Answer

A) receipt of a customer's order. 
B) completion of production of a customer's order. 
C) initiation of production of a customer's order. 
D) acquisition of raw materials for production of an order. 
A) receipt of a customer's order. 
B) completion of production of a customer's order. 
C) initiation of production of a customer's order. 
D) acquisition of raw materials for production of an order.

Question 18

Internal controls over the ship finished goods function in the inventory and warehousing cycle are not normally tested by the auditor as a part of performing tests of controls and substantive tests of transactions in the sales and collection cycle.

Accepted Answer

A) True 
 B)False

Question 19

Almost all companies need physical controls over their assets to prevent loss.Which of the following is not an example of such a control?

Accepted Answer

A) Perpetual inventory master files 
B) Segregated, limited-access storage areas 
C) Custody of assets assigned to specific responsible individuals 
D) Approved prenumbered documents for authorizing movement of inventory 
A) Perpetual inventory master files 
B) Segregated, limited-access storage areas 
C) Custody of assets assigned to specific responsible individuals 
D) Approved prenumbered documents for authorizing movement of inventory

Question 20

The first step in verifying the valuation of purchased inventory is in determining the valuation method used by the client.The next step is:

Accepted Answer

A) determining that all inventory that is purchased is expensed through cost of goods sold. 
B) determining which costs should be included in the valuation of an item of inventory. 
C) determining that all inventory on hand reconciles to the perpetual inventory records. 
D) determining that cut-off procedures have been adhered to prior to counting inventory. 
A) determining that all inventory that is purchased is expensed through cost of goods sold. 
B) determining which costs should be included in the valuation of an item of inventory. 
C) determining that all inventory on hand reconciles to the perpetual inventory records. 
D) determining that cut-off procedures have been adhered to prior to counting inventory.

Exam 21: Audit of the Inventory and Warehousing Cycle

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

Inventory compilation tests are used to verify that the inventory is recorded at the lower of cost or market.

An auditor selects a random sampling of tag numbers and identifies the tag with that number attached to the actual inventory.The purpose of the procedure is to:

Which of the following statements is correct regarding the auditor's responsibility with respect to the year-end inventory procedures of an audit client?

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

A comparison of the current year's inventory turnover ratio with previous years' may indicate the presence of obsolete inventory.

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.

Auditing standards recommend that auditors observe physical inventory counts by the client.

The auditor's tour of the client's inventory facilities should be led by:

The audit of the inventory and warehousing 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.

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of:

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?

The main difference between job order and process costing systems is that:

The most important part of the observation of inventory is to determine whether:

McKesson & Robbins Company is a well-known audit case involving auditor responsibility.What occurred at the McKesson & Robbins Company to change the way in which auditors audit inventory?

In the audit of inventory, the auditor and client are jointly responsible for making and recording the count of physical inventory; while the auditor is responsible for drawing conclusions about the adequacy of the physical inventory.

In most manufacturing companies, the inventory and warehousing cycle begins with the:

Internal controls over the ship finished goods function in the inventory and warehousing cycle are not normally tested by the auditor as a part of performing tests of controls and substantive tests of transactions in the sales and collection cycle.

Almost all companies need physical controls over their assets to prevent loss.Which of the following is not an example of such a control?

The first step in verifying the valuation of purchased inventory is in determining the valuation method used by the client.The next step is:

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

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