Exam 20: Audit of the Inventory and Warehousing Cycle

The audit procedure "Account for unused tag numbers shown in the auditor's working papers to make sure no tags have been added" provides assurance mainly for the existence objective for inventory pricing and compilation.

It is frequently possible to test the physical inventory prior to the balance sheet date when:

When part of the client's inventory is in a public warehouse or in the possession of other outside custodians,the auditor does not need to observe a physical count of the inventory if a written confirmation is obtained directly from the inventory custodians.

A comparison of the current year's inventory turnover ratio with previous years' may indicate the presence of obsolete inventory.

Given the following information about your audit client,perform analytical procedures and comment on your findings.

The physical observation of the inventory and the acquisition of raw materials are part of the inventory and warehousing cycle.

Almost all companies need physical controls over their assets to prevent loss.Which of the following is not an example of such a control?

Auditors need to understand the client's physical inventory count controls before the count of the inventory begins so that:

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

Master files,spreadsheets,and reports that accumulate material,labor,and overhead as the costs are incurred are:

Explain why the audit of work in process and finished goods inventory is generally more complex than the audit of purchased inventory.

When auditors observe the client counting inventory,they should be careful to do all of the following except:

Which of the following is an accurate statement regarding inventory and risk?

Comparing the physical counts with the perpetual inventory master files satisfies the balance-related audit objective of:

A common inventory observation procedure is to be alert for items that are damaged,rust- or dust-covered,or located in inappropriate places.The balance-related audit objective being achieved by this procedure is:

Management typically allocates overhead using total raw materials as the basis for the allocation.

The test of details of balance procedure which requires the auditor to account for unused inventory tag numbers to make sure none have been deleted is associated with the audit objective of:

If an auditor were concerned with obtaining evidence about the appropriateness of the value of inventory,which of the following tests would be most appropriate?

In job cost systems,costs are accumulated by individual jobs.

To test for proper sales cutoff,an auditor would obtain the number of the last bill of lading issued during the period under audit and verify that the item shipped had been excluded from the inventory listing.