Question 1

Auditor tests of physical controls over raw materials,work-in-process,and finished goods are performed by:

Accepted Answer

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

Question 2

The main difference between job order and process costing systems is that:

Accepted Answer

A)  one accumulates costs by materials issued and the other by labor incurred. 
B)  one accumulates costs by individual jobs and the other by particular processes. 
C)  one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process. 
D)  one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence. 
A)  one accumulates costs by materials issued and the other by labor incurred. 
B)  one accumulates costs by individual jobs and the other by particular processes. 
C)  one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process. 
D)  one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence.

Question 3

If the perpetual inventory master files show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded:

Accepted Answer

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

Question 4

What are two factors affecting the complexity of the audit of inventory?

Accepted Answer

•Inventory is often the largest account

Question 5

You are auditing the inventory account and are concerned about the possibility of an inventory overstatement.What is the best audit procedure to detect damaged inventory?

Accepted Answer

A)  Observe the condition of inventory during the client's physical count. 
B)  Compare the condition of inventory from the previous year's count to the current year. 
C)  Compare inventory turnover from the previous year's inventory to the current year's inventory. 
D)  Reconcile the inventory counts to the cost accounting records. 
A)  Observe the condition of inventory during the client's physical count. 
B)  Compare the condition of inventory from the previous year's count to the current year. 
C)  Compare inventory turnover from the previous year's inventory to the current year's inventory. 
D)  Reconcile the inventory counts to the cost accounting records.

Question 6

The major concerns in performing inventory valuation tests are compliance with GAAP and consistency with prior years.

Accepted Answer

A) True 
 B)False

Question 7

Discuss the four aspects of the audit of cost accounting with which the auditor is most concerned.

Accepted Answer

The auditor is most concerned with:
•Phy

Question 8

In most manufacturing companies,the inventory and warehousing cycle begins with the:

Accepted Answer

A)  receipt of a customer's order. 
B)  completion of production of a customer's order. 
C)  initiation of production of a customer's order. 
D)  acquisition of raw materials for production of an order. 
A)  receipt of a customer's order. 
B)  completion of production of a customer's order. 
C)  initiation of production of a customer's order. 
D)  acquisition of raw materials for production of an order.

Question 9

Controls which provide a means of ensuring that the physical counts are properly summarized,priced at the same amount as the unit records,correctly extended and totaled,and included in the general ledger at the proper amount are known as:

Accepted Answer

A)  standard cost controls. 
B)  pricing internal controls. 
C)  compilation internal controls. 
D)  count quantity internal controls. 
A)  standard cost controls. 
B)  pricing internal controls. 
C)  compilation internal controls. 
D)  count quantity internal controls.

Question 10

In addition to performing analytical procedures that examine the relationship of inventory account balances with related financial statement accounts,auditor's will often use non-financial measures in determining the reasonableness of inventory balances.List below at least two non-financial measures that may be useful to auditors.

Accepted Answer

Size and weight of i

Question 11

While separate perpetual inventory records are normally kept for raw materials and finished goods,most companies do not use perpetual records for work-in-process.

Accepted Answer

A) True 
 B)False

Question 12

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of:

Accepted Answer

A)  audit efficiency. 
B)  accuracy of the perpetual inventory master files. 
C)  client convenience. 
D)  audit staff availability. 
A)  audit efficiency. 
B)  accuracy of the perpetual inventory master files. 
C)  client convenience. 
D)  audit staff availability.

Question 13

When auditing manufacturing overhead costs assigned to inventory,auditors should keep in mind that:

Accepted Answer

A)  GAAP has strict procedures that must be followed when assigning overhead to work-in-process inventory. 
B)  overhead costs must be allocated to raw materials, work-in-process, and finished goods inventory. 
C)  management typically allocates overhead using total direct labor dollars as the basis for the allocation. 
D)  determining the reasonableness of the allocation method is relatively simple for work-in-process inventory. 
A)  GAAP has strict procedures that must be followed when assigning overhead to work-in-process inventory. 
B)  overhead costs must be allocated to raw materials, work-in-process, and finished goods inventory. 
C)  management typically allocates overhead using total direct labor dollars as the basis for the allocation. 
D)  determining the reasonableness of the allocation method is relatively simple for work-in-process inventory.

Question 14

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.

Accepted Answer

A)  cutoff 
B)  accuracy 
C)  nature 
D)  extent 
A)  cutoff 
B)  accuracy 
C)  nature 
D)  extent

Question 15

Auditing standards recommend that auditors observe physical inventory counts by the client.

Accepted Answer

A) True 
 B)False

Question 16

A well-designed computerized system of perpetual inventory master files includes information about the:

Accepted Answer

A)  units of inventory purchased, sold, and on hand. 
B)  unit costs of inventory purchased, sold, and on hand. 
C)  units of raw materials, work-in-process, and finished goods. 
D)  units and unit costs of inventory purchased, sold, and on hand. 
A)  units of inventory purchased, sold, and on hand. 
B)  unit costs of inventory purchased, sold, and on hand. 
C)  units of raw materials, work-in-process, and finished goods. 
D)  units and unit costs of inventory purchased, sold, and on hand.

Question 17

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

Accepted Answer

A) True 
 B)False

Question 18

A major source of cutoff information for sales and purchases of inventory is:

Accepted Answer

A)  confirmations from outside parties. 
B)  the test of details of balances. 
C)  physical observation. 
D)  the performance of analytical procedures. 
A)  confirmations from outside parties. 
B)  the test of details of balances. 
C)  physical observation. 
D)  the performance of analytical procedures.

Question 19

The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the:

Accepted Answer

A)  acquisition and payments cycle. 
B)  payroll and personnel cycle. 
C)  inventory and warehousing cycle. 
D)  sales and collection cycle. 
A)  acquisition and payments cycle. 
B)  payroll and personnel cycle. 
C)  inventory and warehousing cycle. 
D)  sales and collection cycle.

Question 20

When there are no perpetual inventory files and inventory is material:

Accepted Answer

A)  an audit cannot be performed, so the auditor must issue a disclaimer. 
B)  a physical inventory should be taken by the client near year-end. 
C)  the auditor will have to perform the inventory count and determine valuation. 
D)  the auditor need not observe inventory counts but must do test counts. 
A)  an audit cannot be performed, so the auditor must issue a disclaimer. 
B)  a physical inventory should be taken by the client near year-end. 
C)  the auditor will have to perform the inventory count and determine valuation. 
D)  the auditor need not observe inventory counts but must do test counts.

Exam 20: Audit of the Inventory and Warehousing Cycle

Auditor tests of physical controls over raw materials,work-in-process,and finished goods are performed by:

The main difference between job order and process costing systems is that:

If the perpetual inventory master files show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded:

What are two factors affecting the complexity of the audit of inventory?

You are auditing the inventory account and are concerned about the possibility of an inventory overstatement.What is the best audit procedure to detect damaged inventory?

The major concerns in performing inventory valuation tests are compliance with GAAP and consistency with prior years.

Discuss the four aspects of the audit of cost accounting with which the auditor is most concerned.

In most manufacturing companies,the inventory and warehousing cycle begins with the:

Controls which provide a means of ensuring that the physical counts are properly summarized,priced at the same amount as the unit records,correctly extended and totaled,and included in the general ledger at the proper amount are known as:

While separate perpetual inventory records are normally kept for raw materials and finished goods,most companies do not use perpetual records for work-in-process.

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of:

When auditing manufacturing overhead costs assigned to inventory,auditors should keep in mind that:

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.

Auditing standards recommend that auditors observe physical inventory counts by the client.

A well-designed computerized system of perpetual inventory master files includes information about the:

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

A major source of cutoff information for sales and purchases of inventory is:

The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the:

When there are no perpetual inventory files and inventory is material:

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

Filters