Exam 13: Auditing the Inventory Management Process

State the six functions that make up the inventory management process. For each function, identify the related documents and/or records that would be used by a manufacturing company.

The element of the audit planning process most likely to be agreed upon with the entity before implementation of the audit strategy is the determination of the

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

Which of the following audit procedures would provide the least reliable evidence that the entity has legal title to inventories?

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?

An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the physical inventory sheets. The purpose of this procedure is to obtain assurance that

Which of the following is not a misstatement related to the occurrence assertion for inventory?

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

While observing an entity's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the entity's perpetual records. This situation could be the result of the entity's failure to record

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

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

Explain the importance of observing physical inventory during an audit.

In an audit of inventories, an auditor would least likely verify that

Which of the following is a question that the auditor would expect to find on the production process section of an internal control questionnaire?

The three components that make up the cost of producing a product include materials, direct labor, and indirect labor.

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

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

A high inventory turnover ratio normally indicates inefficient inventory policies.

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

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