Question 1

The auditor's observation of inventory is a generally accepted auditing procedure.

Accepted Answer

A) True 
 B)False  True

Question 2

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

Accepted Answer

A)  Verifying that inventory counted is owned by the client. 
B)  Verifying that the client has used proper inventory pricing. 
C)  Ascertaining the physical quantities of inventory on hand. 
D)  Verifying that all inventory owned by the client is on hand at the time of the count. 
A)  Verifying that inventory counted is owned by the client. 
B)  Verifying that the client has used proper inventory pricing. 
C)  Ascertaining the physical quantities of inventory on hand. 
D)  Verifying that all inventory owned by the client is on hand at the time of the count. D

Question 3

Inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset.

Accepted Answer

A) True 
 B)False  False

Question 4

Failure to record inventory in the proper period can affect all of the following accounts except:

Accepted Answer

A)  Sales. 
B)  Receivables. 
C)  Cost of Goods Sold. 
D)  Prepaid Expenses. 
A)  Sales. 
B)  Receivables. 
C)  Cost of Goods Sold. 
D)  Prepaid Expenses.

Question 5

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 obli

Question 6

Obsolete inventory should be written down to its current market value.

Accepted Answer

A) True 
 B)False

Question 7

A receiving report records the shipment of goods to customers.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  Are vendors' invoices for raw materials approved for payment by an employee who is independent of the cash disbursements function? 
B)  Are signed checks for the purchase of raw materials mailed directly after signing without being returned to the person who authorized the invoice processing? 
C)  Are all releases by storekeepers of raw materials from storage based on approved requisition documents? 
D)  Are details of individual disbursements for raw materials balanced with the total to be posted to the appropriate general ledger account? 
A)  Are vendors' invoices for raw materials approved for payment by an employee who is independent of the cash disbursements function? 
B)  Are signed checks for the purchase of raw materials mailed directly after signing without being returned to the person who authorized the invoice processing? 
C)  Are all releases by storekeepers of raw materials from storage based on approved requisition documents? 
D)  Are details of individual disbursements for raw materials balanced with the total to be posted to the appropriate general ledger account?

Question 11

The audit of inventory is often the most involved aspect of an audit.Describe at least three inherent risk factors that affect the audit of inventory.

Accepted Answer

One inherent risk concerns the valuation

Question 12

Purchase cutoff activities should be designed to test that merchandise is included in the inventory of the client company if the company

Accepted Answer

A)  Has paid for the merchandise. 
B)  Has physical possession of the merchandise. 
C)  Holds legal title to the merchandise. 
D)  Holds the shipping documents for the merchandise issued in the company's name. 
A)  Has paid for the merchandise. 
B)  Has physical possession of the merchandise. 
C)  Holds legal title to the merchandise. 
D)  Holds the shipping documents for the merchandise issued in the company's name.

Question 13

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 14

In order to efficiently establish the correctness of the accounts payable cutoff,an auditor will be most likely to

Accepted Answer

A)  Coordinate cutoff tests with physical inventory observation. 
B)  Compare cutoff reports with purchase orders. 
C)  Compare vendors' invoices with vendors' statements. 
D)  Coordinate mailing of confirmations with cutoff tests. 
A)  Coordinate cutoff tests with physical inventory observation. 
B)  Compare cutoff reports with purchase orders. 
C)  Compare vendors' invoices with vendors' statements. 
D)  Coordinate mailing of confirmations with cutoff tests.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A client's physical count of inventories was lower than the inventory quantities shown in its perpetual records.This situation could be the result of the failure to record

Accepted Answer

A)  Sales. 
B)  Sales returns. 
C)  Purchases. 
D)  Purchase discounts. 
A)  Sales. 
B)  Sales returns. 
C)  Purchases. 
D)  Purchase discounts.

Question 17

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

Accepted Answer

A)  Confirmation of inventories at locations outside the client's facilities. 
B)  Analytical review of inventory balances compared to purchasing and sales activities. 
C)  Observation of physical inventory counts. 
D)  Examination of paid vendors' invoices. 
A)  Confirmation of inventories at locations outside the client's facilities. 
B)  Analytical review of inventory balances compared to purchasing and sales activities. 
C)  Observation of physical inventory counts. 
D)  Examination of paid vendors' invoices.

Question 18

Which of the following departments typically approves purchase requisitions?

Accepted Answer

A)  Raw materials stores. 
B)  Cost accounting. 
C)  Inventory management. 
D)  IT. 
A)  Raw materials stores. 
B)  Cost accounting. 
C)  Inventory management. 
D)  IT.

Question 19

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

Accepted Answer

A)  Quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand. 
B)  Physical inventories are in substantial agreement with book inventories. 
C)  The system is in accordance with generally accepted accounting principles and is functioning as planned. 
D)  Costs have been properly assigned to work in process, finished goods, and cost of goods sold. 
A)  Quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand. 
B)  Physical inventories are in substantial agreement with book inventories. 
C)  The system is in accordance with generally accepted accounting principles and is functioning as planned. 
D)  Costs have been properly assigned to work in process, finished goods, and cost of goods sold.

Question 20

Shipping orders are forwarded from the revenue process to

Accepted Answer

A)  The materials requisitions department. 
B)  Finished goods stores. 
C)  Raw materials stores. 
D)  Inventory management. 
A)  The materials requisitions department. 
B)  Finished goods stores. 
C)  Raw materials stores. 
D)  Inventory management.

The auditor's observation of inventory is a generally accepted auditing procedure.

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

Inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset.

Failure to record inventory in the proper period can affect all of the following accounts except:

Obsolete inventory should be written down to its current market value.

A receiving report records the shipment of goods to customers.

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

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

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 audit of inventory is often the most involved aspect of an audit.Describe at least three inherent risk factors that affect the audit of inventory.

Purchase cutoff activities should be designed to test that merchandise is included in the inventory of the client company if the company

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

In order to efficiently establish the correctness of the accounts payable cutoff,an auditor will be most likely to

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

A client's physical count of inventories was lower than the inventory quantities shown in its 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 client has legal title to inventories?

Which of the following departments typically approves purchase requisitions?

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

Shipping orders are forwarded from the revenue process to

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 Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting 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

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Exam 21: Assurance,Attestation,and Internal Auditing Services

The auditor's observation of inventory is a generally accepted auditing procedure.

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

Inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset.

Failure to record inventory in the proper period can affect all of the following accounts except:

Obsolete inventory should be written down to its current market value.

A receiving report records the shipment of goods to customers.

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

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

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 audit of inventory is often the most involved aspect of an audit.Describe at least three inherent risk factors that affect the audit of inventory.

Purchase cutoff activities should be designed to test that merchandise is included in the inventory of the client company if the company

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

In order to efficiently establish the correctness of the accounts payable cutoff,an auditor will be most likely to

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

A client's physical count of inventories was lower than the inventory quantities shown in its 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 client has legal title to inventories?

Which of the following departments typically approves purchase requisitions?

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

Shipping orders are forwarded from the revenue process to

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 Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting 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

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