Question 1

Auditors are most likely to ensure that no production activity is scheduled prior to

Accepted Answer

A)  Determining standard costs. 
B)  Observing physical inventory. 
C)  Completing the book to physical adjustment. 
D)  Determining the amount of consigned inventory. 
A)  Determining standard costs. 
B)  Observing physical inventory. 
C)  Completing the book to physical adjustment. 
D)  Determining the amount of consigned inventory.

Question 2

Inventory should be valued using the lower-of-cost-or-market rule.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

Accepted Answer

A)  Compare the physical quantities of slow-moving items with corresponding quantities of the prior year. 
B)  Observe the condition of merchandise and raw materials during the entity's physical inventory count. 
C)  Review the management's inventory representation letter for accuracy. 
D)  Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average. 
A)  Compare the physical quantities of slow-moving items with corresponding quantities of the prior year. 
B)  Observe the condition of merchandise and raw materials during the entity's physical inventory count. 
C)  Review the management's inventory representation letter for accuracy. 
D)  Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.

Question 5

Which of the following best describes the occurrence assertion for inventory?

Accepted Answer

A)  Purchase requisitions initiated by authorized personnel. 
B)  Recorded inventory actually exists. 
C)  Inventory properly accumulated from journals and ledgers. 
D)  All inventory is recorded. 
A)  Purchase requisitions initiated by authorized personnel. 
B)  Recorded inventory actually exists. 
C)  Inventory properly accumulated from journals and ledgers. 
D)  All inventory is recorded.

Question 6

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Accepted Answer

A)  Independent storeroom count of goods received. 
B)  Periodic independent reconciliation of control and subsidiary records. 
C)  Periodic independent comparison of records with goods on hands. 
D)  Independent matching of purchase orders, receiving reports, and vendors' invoices. 
A)  Independent storeroom count of goods received. 
B)  Periodic independent reconciliation of control and subsidiary records. 
C)  Periodic independent comparison of records with goods on hands. 
D)  Independent matching of purchase orders, receiving reports, and vendors' invoices.

Question 7

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

Accepted Answer

A)  Vouching the raw materials' costs to vendors' invoices. 
B)  Obtaining confirmation of inventories pledged under loan agreements. 
C)  Reviewing shipping and receiving cutoff activities for inventories. 
D)  Tracing test counts to the entity's inventory listing. 
A)  Vouching the raw materials' costs to vendors' invoices. 
B)  Obtaining confirmation of inventories pledged under loan agreements. 
C)  Reviewing shipping and receiving cutoff activities for inventories. 
D)  Tracing test counts to the entity's inventory listing.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?

Accepted Answer

A)  Inventory cutoff errors. 
B)  Misapplication of LIFO. 
C)  Unreported scrap or spoilage. 
D)  Theft. 
A)  Inventory cutoff errors. 
B)  Misapplication of LIFO. 
C)  Unreported scrap or spoilage. 
D)  Theft.

Question 10

In the audit of inventory, the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

Accepted Answer

A) True 
 B)False

Question 11

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably

Accepted Answer

A)  Want the entity to schedule the physical inventory count at the end of the year. 
B)  Insist that the entity perform physical counts of inventory items several times during the year. 
C)  Increase the extent of tests for unrecorded liabilities at the end of the year. 
D)  Have to disclaim an opinion on the income statement for that year. 
A)  Want the entity to schedule the physical inventory count at the end of the year. 
B)  Insist that the entity perform physical counts of inventory items several times during the year. 
C)  Increase the extent of tests for unrecorded liabilities at the end of the year. 
D)  Have to disclaim an opinion on the income statement for that year.

Question 12

For each of the following, state whether it is a test of details of account balances or a test of details of disclosures. Then note for which assertion the test provides evidence.
1. Inspect loan agreements under which an entity's inventories are pledged.
2. Review inventory compilation for proper classification among raw materials, work in process, and finished goods.
3. Observe the count of physical inventory.
4. Trace test counts and tag control information to the inventory compilation.
5. Inquire of management about issues related to LIFO liquidations.
6. Review book-to-physical adjustments for possible misstatements.

Accepted Answer

1. Disclosures - Occurrence, Rights and

Question 13

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 14

The audit test of control "Review and test procedures for issuing materials to manufacturing departments" provides assurance mainly for the occurrence assertion for inventory management.

Accepted Answer

A) True 
 B)False

Auditors are most likely to ensure that no production activity is scheduled prior to

Inventory should be valued using the lower-of-cost-or-market rule.

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

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

Which of the following best describes the occurrence assertion for inventory?

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

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

Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?

In the audit of inventory, the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably

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

The audit test of control "Review and test procedures for issuing materials to manufacturing departments" provides assurance mainly for the occurrence assertion for inventory management.

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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

Auditors are most likely to ensure that no production activity is scheduled prior to

Inventory should be valued using the lower-of-cost-or-market rule.

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

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

Which of the following best describes the occurrence assertion for inventory?

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

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

Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?

In the audit of inventory, the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably

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

The audit test of control "Review and test procedures for issuing materials to manufacturing departments" provides assurance mainly for the occurrence assertion for inventory management.

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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