Question 1

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  False

Question 2

________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.

Accepted Answer

A)  Just-in-time production systems 
B)  Job order cost systems 
C)  Process cost systems 
D)  Manufacturing systems 
A)  Just-in-time production systems 
B)  Job order cost systems 
C)  Process cost systems 
D)  Manufacturing systems B

Question 3

Auditing standards require that auditors satisfy themselves about the effectiveness of the client's methods of counting inventory and the reliance they can place on the client's representations about the quantities and physical condition of the inventories.To meet this requirement auditors must perform four activities.List below.

Accepted Answer

•Be present at the time the client counts the inventory
•Observe the client's counting procedures
•Make inquiries of client personnel about their counting procedures
•Make their own independent tests of the physical count

Question 4

Which of the following is an accurate statement regarding the audit of pricing and compilation of inventory?

Accepted Answer

A)  Inventory compilation tests include all of the tests of the client's unit prices to determine whether they are correct. 
B)  The review for obsolete inventory should be performed by the accounting department. 
C)  The most important internal control for accurate unit costs is external verification by an outside consultant. 
D)  Inventory compilation internal controls are needed to ensure that the physical counts are correctly summarized and priced. 
A)  Inventory compilation tests include all of the tests of the client's unit prices to determine whether they are correct. 
B)  The review for obsolete inventory should be performed by the accounting department. 
C)  The most important internal control for accurate unit costs is external verification by an outside consultant. 
D)  Inventory compilation internal controls are needed to ensure that the physical counts are correctly summarized and priced.

Question 5

Boxes or other containers holding inventory should also be opened during test counts to determine the ________ of the inventory.

Accepted Answer

A)  classification 
B)  detail tie-in 
C)  existence 
D)  realizable value 
A)  classification 
B)  detail tie-in 
C)  existence 
D)  realizable value

Question 6

When verifying the transfer of inventory from one location to another,the audit objectives with which the auditor is primarily concerned are occurrence of recorded transfers,completeness of recorded transfers,and accuracy of recorded transfers.

Accepted Answer

A) True 
 B)False

Question 7

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.

Question 8

Which of the following controls would be appropriate regarding the release of materials from a stockroom?

Accepted Answer

A)  Production employees request materials be delivered to their work areas as they need them. 
B)  Stockroom employees deliver materials to work areas throughout the day to maintain acceptable levels of safety stock - no written records are maintained. 
C)  Production employees submit approved requisition forms to the stockroom for materials needed. 
D)  Production employer in need of materials should personally pick up needed materials from the stockroom. 
A)  Production employees request materials be delivered to their work areas as they need them. 
B)  Stockroom employees deliver materials to work areas throughout the day to maintain acceptable levels of safety stock - no written records are maintained. 
C)  Production employees submit approved requisition forms to the stockroom for materials needed. 
D)  Production employer in need of materials should personally pick up needed materials from the stockroom.

Question 9

If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count,the auditor should ordinarily:

Accepted Answer

A)  withdraw from the engagement. 
B)  issue a qualified audit report. 
C)  conduct expanded observation tests of physical inventory. 
D)  hire a specialist to assist the auditor. 
A)  withdraw from the engagement. 
B)  issue a qualified audit report. 
C)  conduct expanded observation tests of physical inventory. 
D)  hire a specialist to assist the auditor.

Question 10

When determining the sample size for the number of items the auditor should count during the physical inventory:

Accepted Answer

A)  it is easy to quantify the number of items based on a formula developed by the AICPA. 
B)  one of the key determinants that must be considered is internal control over the physical count. 
C)  one of the key determinants that must be considered is the time involved. 
D)  generally accepted auditing standards require that at least 80% of the dollar value of the inventory should be included in the sample. 
A)  it is easy to quantify the number of items based on a formula developed by the AICPA. 
B)  one of the key determinants that must be considered is internal control over the physical count. 
C)  one of the key determinants that must be considered is the time involved. 
D)  generally accepted auditing standards require that at least 80% of the dollar value of the inventory should be included in the sample.

Question 11

The physical counting of inventory may be performed at which of the following times?

Accepted Answer

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

Question 12

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

Accepted Answer

A)  contact a client's supervisor to correct the problem. 
B)  modify the client's physical inventory instructions. 
C)  not discuss the problem with client's supervisor in order to maintain independence. 
D)  assign audit staff to the inventory count. 
A)  contact a client's supervisor to correct the problem. 
B)  modify the client's physical inventory instructions. 
C)  not discuss the problem with client's supervisor in order to maintain independence. 
D)  assign audit staff to the inventory count.

Question 13

You are gathering evidence for the audit objective that existing inventory items are included in the inventory listing schedule.The audit procedure that would provide you with the best evidence to confirm this objective is:

Accepted Answer

A)  trace from inventory tags to the inventory listing schedule and make sure the inventory tag is included. 
B)  trace the inventory totals to the general ledger. 
C)  perform tests of lower-of-cost-or-market. 
D)  account for unused tags shown in the auditor's documentation to make sure no tags have been added. 
A)  trace from inventory tags to the inventory listing schedule and make sure the inventory tag is included. 
B)  trace the inventory totals to the general ledger. 
C)  perform tests of lower-of-cost-or-market. 
D)  account for unused tags shown in the auditor's documentation to make sure no tags have been added.

Question 14

To assure proper segregation of duties,who should maintain the perpetual inventory master files?

Accepted Answer

A)  Production personnel 
B)  Inventory storeroom personnel 
C)  Inventory receiving personnel 
D)  Accounting department personnel 
A)  Production personnel 
B)  Inventory storeroom personnel 
C)  Inventory receiving personnel 
D)  Accounting department personnel

Question 15

Auditors test 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 16

When a physical count of inventory is performed at an interim date,the auditor observes it at that time and tests the perpetual records for transactions:

Accepted Answer

A)  throughout the year. 
B)  which are a representative sample of the period under audit. 
C)  from the date of the count to year-end. 
D)  from the date of the count to the end of the audit field work. 
A)  throughout the year. 
B)  which are a representative sample of the period under audit. 
C)  from the date of the count to year-end. 
D)  from the date of the count to the end of the audit field work.

Question 17

There must be a periodic physical count by the client of the inventory items on hand:

Accepted Answer

A)  only if the client uses the LIFO method. 
B)  only if the client uses a lower-of-cost-or-market method. 
C)  regardless of the client's inventory valuation method. 
D)  only if the client uses either the LIFO or FIFO method. 
A)  only if the client uses the LIFO method. 
B)  only if the client uses a lower-of-cost-or-market method. 
C)  regardless of the client's inventory valuation method. 
D)  only if the client uses either the LIFO or FIFO method.

Question 18

What are the auditor's primary concerns in verifying the transfer of inventory from one location to another?

Accepted Answer

1.recorded transfers exist
2.a

Question 19

When performing price tests for purchased inventory,the auditor would not be concerned with the most recent vendors' invoices if the client uses the FIFO valuation method.

Accepted Answer

A) True 
 B)False

Question 20

Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.

Accepted Answer

An auditor's physical examination of inv

Exam 20: Audit of the Inventory and Warehousing Cycle

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

________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.

Which of the following is an accurate statement regarding the audit of pricing and compilation of inventory?

Boxes or other containers holding inventory should also be opened during test counts to determine the ________ of the inventory.

When verifying the transfer of inventory from one location to another,the audit objectives with which the auditor is primarily concerned are occurrence of recorded transfers,completeness of recorded transfers,and accuracy of recorded transfers.

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

Which of the following controls would be appropriate regarding the release of materials from a stockroom?

If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count,the auditor should ordinarily:

When determining the sample size for the number of items the auditor should count during the physical inventory:

The physical counting of inventory may be performed at which of the following times?

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

You are gathering evidence for the audit objective that existing inventory items are included in the inventory listing schedule.The audit procedure that would provide you with the best evidence to confirm this objective is:

To assure proper segregation of duties,who should maintain the perpetual inventory master files?

Auditors test the quantity of materials charged to work-in-process by tracing these quantities to:

When a physical count of inventory is performed at an interim date,the auditor observes it at that time and tests the perpetual records for transactions:

There must be a periodic physical count by the client of the inventory items on hand:

What are the auditor's primary concerns in verifying the transfer of inventory from one location to another?

When performing price tests for purchased inventory,the auditor would not be concerned with the most recent vendors' invoices if the client uses the FIFO valuation method.

Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan 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

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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