Exam 21: Audit of the Inventory and Warehousing Cycle

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

A major difficulty in the verification of inventory cost records for the purpose of inventory valuation is in determining the reasonableness of the

The receipt of raw materials is a part of the acquisition and payment cycle.

When an auditor observes that personnel who are responsible for physically counting inventory are not following the inventory instructions, the auditor should

The inventory and warehousing cycle ends with the sale of goods in the sales and collection cycle.

Which of the following is a significant audit concern related to the transfer of inventory from one location to another?

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

Discuss the key control procedures relating to the client's physical count of inventory.

Auditors usually test cost accounting records as part of the

Accounting standards require disclosure of inventory valuation methods.

Which of the following is not a function within the inventory and warehousing cycle?

Internal controls over cost accounting records are very similar among companies.

When labor is a significant part of inventory, verifying the proper accounting of these costs should be tested in the

When auditors observe the client counting inventory, the auditor should take special care in three areas with regards to selection of inventory items. What action should be taken in these areas?

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

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.

Inventory price tests include testing the client's summarization of the inventory counts.

It is frequently possible to test the physical inventory prior to the balance sheet date when

The receiving department prepares a receiving report which often is electronic notification of the receipt of goods that become part of the document before payment is made to the vendor.

A common inventory observation procedure is to be alert for items that are damaged, rust- or dust-covered, or located in inappropriate places. The balance-related audit objective being achieved by this procedure is