Question 1

A receiving report records the shipment of goods to customers.

Accepted Answer

A) True 
 B)False

Question 2

An auditor will usually trace the details of the test counts made during the observation of the physical inventory count to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are:

Accepted Answer

A) owned by the entity. 
B) not obsolete. 
C) physically present at the time of the preparation of the final inventory schedule. 
D) included in the final inventory schedule. 
A) owned by the entity. 
B) not obsolete. 
C) physically present at the time of the preparation of the final inventory schedule. 
D) included in the final inventory schedule.

Question 3

Key segregations of duties in the inventory management process include all of the following except separating:

Accepted Answer

A) cost accounting from review of variance reports. 
B) inventory management from cost accounting. 
C) cost accounting from the general ledger function. 
D) supervision of physical inventory from inventory management. 
A) cost accounting from review of variance reports. 
B) inventory management from cost accounting. 
C) cost accounting from the general ledger function. 
D) supervision of physical inventory from inventory management.

Question 4

In a manufacturing company, which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

Accepted Answer

A) Testing the computation of standard overhead rates. 
B) Examining paid vendors' invoices. 
C) Reviewing direct labor rates. 
D) Obtaining confirmation of inventories pledged under loan agreements. 
A) Testing the computation of standard overhead rates. 
B) Examining paid vendors' invoices. 
C) Reviewing direct labor rates. 
D) Obtaining confirmation of inventories pledged under loan agreements.

Question 5

The physical count of inventory of a retailer was higher than shown in its perpetual records. Which of the following could explain the difference?

Accepted Answer

A) Inventory items had been counted but tags placed on the items had not been taken off the items and added to the inventory accumulation sheets. 
B) Credit memos for several items returned by customers had not been prepared. 
C) No journal entry had been made on the retailer's books for several items returned to its suppliers. 
D) An item purchased "FOB shipping point" had not arrived at the date of the inventory count and had not been reflected in the perpetual records. 
A) Inventory items had been counted but tags placed on the items had not been taken off the items and added to the inventory accumulation sheets. 
B) Credit memos for several items returned by customers had not been prepared. 
C) No journal entry had been made on the retailer's books for several items returned to its suppliers. 
D) An item purchased "FOB shipping point" had not arrived at the date of the inventory count and had not been reflected in the perpetual records.

Question 6

When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that:

Accepted Answer

A) quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand. 
B) physical inventories are in substantial agreement with book inventories. 
C) the system is in accordance with generally accepted accounting principles and is functioning as planned. 
D) costs have been properly assigned to work in process, finished goods, and cost of goods sold. 
A) quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand. 
B) physical inventories are in substantial agreement with book inventories. 
C) the system is in accordance with generally accepted accounting principles and is functioning as planned. 
D) costs have been properly assigned to work in process, finished goods, and cost of goods sold.

Question 7

An inventory turnover analysis is useful to the auditor because it may detect:

Accepted Answer

A) inadequacies in inventory pricing. 
B) methods of avoiding cyclical holding costs. 
C) the optimum automatic reorder points. 
D) the existence of obsolete merchandise. 
A) inadequacies in inventory pricing. 
B) methods of avoiding cyclical holding costs. 
C) the optimum automatic reorder points. 
D) the existence of obsolete merchandise.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Explain the importance of observing physical inventory during an audit.

Accepted Answer

Inventory is typically a large account o

A receiving report records the shipment of goods to customers.

Key segregations of duties in the inventory management process include all of the following except separating:

In a manufacturing company, which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

The physical count of inventory of a retailer was higher than shown in its perpetual records. Which of the following could explain the difference?

When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that:

An inventory turnover analysis is useful to the auditor because it may detect:

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

Explain the importance of observing physical inventory during an audit.

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

A receiving report records the shipment of goods to customers.

Key segregations of duties in the inventory management process include all of the following except separating:

In a manufacturing company, which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

The physical count of inventory of a retailer was higher than shown in its perpetual records. Which of the following could explain the difference?

When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that:

An inventory turnover analysis is useful to the auditor because it may detect:

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

Explain the importance of observing physical inventory during an audit.

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