Exam 13: Auditing the Inventory Management Process

In the audit of inventory, the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

Which of the following is a question that the auditor would expect to find on the production process section of an internal control questionnaire?

To gain assurance that all inventory items in an entity's inventory listing schedule are valid, an auditor most likely would trace:

An entity's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record:

The auditor's observation of inventory is a generally accepted auditing procedure.

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

Which of the following departments typically approves purchase requisitions?

Once the controls in the inventory system have been tested, the auditor sets the level of control risk.

The audit of inventory is often the most involved aspect of an audit. Describe at least three inherent risk factors that affect the audit of inventory.

Which of the following best describes the occurrence assertion for inventory?

While observing an entity's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the entity's perpetual records. This situation could be the result of the entity's failure to record:

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

We know from cost accounting that there are three components that make up the standard costs for inventory. Explain how an auditor could test each of these components for a company that manufactures pillows.

Below is information relating to the inventory management of Quick Sell. Using analytical procedures, identify any concerns you have about misstatements in the financial statements.

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?

The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with:

Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?

Failure to record inventory in the proper period can affect all of the following accounts except:

The three components that make up the cost of producing a product include materials, direct labor, and indirect labor.

An auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory, including presentation and disclosure, and: