Question 1

Tracing costs used to price inventory to vendors' invoices test which of the following assertions?

Accepted Answer

A) Occurrence. 
B) Cutoff. 
C) Accuracy. 
D) Classification. 
A) Occurrence. 
B) Cutoff. 
C) Accuracy. 
D) Classification.

Question 2

Which of the following is not one of the independent auditor's objectives regarding the examination of inventories?

Accepted Answer

A) Verifying that inventory counted is owned by the entity. 
B) Verifying that the entity has used proper inventory pricing. 
C) Ascertaining the physical quantities of inventory on hand. 
D) Verifying that all inventory owned by the entity is on hand at the time of the count. 
A) Verifying that inventory counted is owned by the entity. 
B) Verifying that the entity has used proper inventory pricing. 
C) Ascertaining the physical quantities of inventory on hand. 
D) Verifying that all inventory owned by the entity is on hand at the time of the count.

Question 3

The auditor tests the quantity of materials charged to work in process by tracing these quantities to:

Accepted Answer

A) cost ledgers. 
B) perpetual inventory records. 
C) receiving reports. 
D) material requisitions. 
A) cost ledgers. 
B) perpetual inventory records. 
C) receiving reports. 
D) material requisitions.

Question 4

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would:

Accepted Answer

A) review the entity's description of inventory policies and procedures. 
B) perform test counts of inventory during the entity's physical count. 
C) analyze inventory turnover statistics to identify slow-moving and obsolete items. 
D) analyze monthly production reports to identify variances and unusual transactions. 
A) review the entity's description of inventory policies and procedures. 
B) perform test counts of inventory during the entity's physical count. 
C) analyze inventory turnover statistics to identify slow-moving and obsolete items. 
D) analyze monthly production reports to identify variances and unusual transactions.

Question 5

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably:

Accepted Answer

A) want the entity to schedule the physical inventory count at the end of the year. 
B) insist that the entity perform physical counts of inventory items several times during the year. 
C) increase the extent of tests for unrecorded liabilities at the end of the year. 
D) have to disclaim an opinion on the income statement for that year. 
A) want the entity to schedule the physical inventory count at the end of the year. 
B) insist that the entity perform physical counts of inventory items several times during the year. 
C) increase the extent of tests for unrecorded liabilities at the end of the year. 
D) have to disclaim an opinion on the income statement for that year.

Question 6

A high inventory turnover ratio normally indicates inefficient inventory policies.

Accepted Answer

A) True 
 B)False

Question 7

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

Accepted Answer

A) True 
 B)False

Question 8

Sale of finished goods is a part of the inventory management process.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) sales. 
B) sales discounts. 
C) purchases. 
D) purchase returns. 
A) sales. 
B) sales discounts. 
C) purchases. 
D) purchase returns.

Question 10

Obsolete inventory should be written down to its current market value.

Accepted Answer

A) True 
 B)False

Question 11

When the entity'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 12

For several years, an entity's physical inventory count has been lower than what was shown on the books at the time of the count so that downward adjustments to the inventory account were required. Contributing to the inventory problem could be weaknesses in internal controls that led to the failure to record some:

Accepted Answer

A) purchases returned to vendors. 
B) sales returns received. 
C) sales discounts allowed. 
D) cash purchases. 
A) purchases returned to vendors. 
B) sales returns received. 
C) sales discounts allowed. 
D) cash purchases.

Question 13

List five things an auditor should do during the observation of the physical count of inventory.

Accepted Answer

• Ensure that no production is scheduled

Question 14

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Accepted Answer

A) Independent storeroom count of goods received. 
B) Periodic independent reconciliation of control and subsidiary records. 
C) Periodic independent comparison of records with goods on hands. 
D) Independent matching of purchase orders, receiving reports, and vendors' invoices. 
A) Independent storeroom count of goods received. 
B) Periodic independent reconciliation of control and subsidiary records. 
C) Periodic independent comparison of records with goods on hands. 
D) Independent matching of purchase orders, receiving reports, and vendors' invoices.

Question 15

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of:

Accepted Answer

A) valuation. 
B) rights and obligations. 
C) existence. 
D) completeness. 
A) valuation. 
B) rights and obligations. 
C) existence. 
D) completeness.

Question 16

Purchase cutoff activities should be designed to test that merchandise is included in the inventory of the entity company if the company:

Accepted Answer

A) has paid for the merchandise. 
B) has physical possession of the merchandise. 
C) holds legal title to the merchandise. 
D) holds the shipping documents for the merchandise issued in the company's name. 
A) has paid for the merchandise. 
B) has physical possession of the merchandise. 
C) holds legal title to the merchandise. 
D) holds the shipping documents for the merchandise issued in the company's name.

Question 17

An approved purchase requisition form authorizes shipment of goods to customers.

Accepted Answer

A) True 
 B)False

Question 18

For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?

Accepted Answer

A) Materials requisitions. 
B) Production schedules. 
C) Receiving documents. 
D) Purchase orders. 
A) Materials requisitions. 
B) Production schedules. 
C) Receiving documents. 
D) Purchase orders.

Question 19

The audit of year-end physical inventories should include steps to verify that the entity's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a:

Accepted Answer

A) sale in the subsequent period. 
B) purchase in the current period. 
C) sale in the current period. 
D) purchase return in the subsequent period. 
A) sale in the subsequent period. 
B) purchase in the current period. 
C) sale in the current period. 
D) purchase return in the subsequent period.

Question 20

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the entity's physical inventories?

Accepted Answer

A) Confirmation of goods in the hands of public warehouses. 
B) Supervising the annual physical inventory count. 
C) Carrying out physical inventory procedures at an interim date. 
D) Obtaining written representation from the entity as to the existence, quality, and dollar amount of the inventory. 
A) Confirmation of goods in the hands of public warehouses. 
B) Supervising the annual physical inventory count. 
C) Carrying out physical inventory procedures at an interim date. 
D) Obtaining written representation from the entity as to the existence, quality, and dollar amount of the inventory.

Tracing costs used to price inventory to vendors' invoices test which of the following assertions?

Which of the following is not one of the independent auditor's objectives regarding the examination of inventories?

The auditor tests the quantity of materials charged to work in process by tracing these quantities to:

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would:

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably:

A high inventory turnover ratio normally indicates inefficient inventory policies.

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

Sale of finished goods is a part of the inventory management process.

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

Obsolete inventory should be written down to its current market value.

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

List five things an auditor should do during the observation of the physical count of inventory.

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of:

Purchase cutoff activities should be designed to test that merchandise is included in the inventory of the entity company if the company:

An approved purchase requisition form authorizes shipment of goods to customers.

For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?

The audit of year-end physical inventories should include steps to verify that the entity's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a:

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the entity's physical inventories?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 13: Auditing the Inventory Management Process

Tracing costs used to price inventory to vendors' invoices test which of the following assertions?

Which of the following is not one of the independent auditor's objectives regarding the examination of inventories?

The auditor tests the quantity of materials charged to work in process by tracing these quantities to:

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would:

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably:

A high inventory turnover ratio normally indicates inefficient inventory policies.

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

Sale of finished goods is a part of the inventory management process.

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

Obsolete inventory should be written down to its current market value.

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

List five things an auditor should do during the observation of the physical count of inventory.

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of:

Purchase cutoff activities should be designed to test that merchandise is included in the inventory of the entity company if the company:

An approved purchase requisition form authorizes shipment of goods to customers.

For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?

The audit of year-end physical inventories should include steps to verify that the entity's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a:

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the entity's physical inventories?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters