Question 1

Sale of finished goods is a part of the inventory management process.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  Occurrence. 
B)  Cutoff. 
C)  Accuracy. 
D)  Classification. 
A)  Occurrence. 
B)  Cutoff. 
C)  Accuracy. 
D)  Classification.

Question 3

The major control procedure for preventing fictitious inventory transactions from being recorded is proper segregation of duties.

Accepted Answer

A) True 
 B)False

Question 4

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?

Accepted Answer

A)  Materials requisitions. 
B)  Production schedules. 
C)  Receiving documents. 
D)  Purchase orders. 
A)  Materials requisitions. 
B)  Production schedules. 
C)  Receiving documents. 
D)  Purchase orders.

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

The physical count of inventory of a retailer was higher than shown in its perpetual records.Which of the following could explain the difference?

Accepted Answer

A)  Inventory items had been counted but tags placed on the items had not been taken off the items and added to the inventory accumulation sheets. 
B)  Credit memos for several items returned by customers had not been prepared. 
C)  No journal entry had been made on the retailer's books for several items returned to its suppliers. 
D)  An item purchased "FOB shipping point" had not arrived at the date of the inventory count and had not been reflected in the perpetual records. 
A)  Inventory items had been counted but tags placed on the items had not been taken off the items and added to the inventory accumulation sheets. 
B)  Credit memos for several items returned by customers had not been prepared. 
C)  No journal entry had been made on the retailer's books for several items returned to its suppliers. 
D)  An item purchased "FOB shipping point" had not arrived at the date of the inventory count and had not been reflected in the perpetual records.

Question 7

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client'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 client'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 client'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 8

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.

Accepted Answer

Inventory management function - The inve

Question 9

The safeguarding of inventory most likely includes

Accepted Answer

A)  Comparison of the information contained on the purchase requisitions, purchase orders, receiving reports, and vendors' invoices. 
B)  Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count. 
C)  Analytical procedures for raw materials, goods in process, and finished goods that identify unusual transactions, theft and obsolescence. 
D)  Application of established overhead rates on the basis of direct labor hours or direct labor costs. 
A)  Comparison of the information contained on the purchase requisitions, purchase orders, receiving reports, and vendors' invoices. 
B)  Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count. 
C)  Analytical procedures for raw materials, goods in process, and finished goods that identify unusual transactions, theft and obsolescence. 
D)  Application of established overhead rates on the basis of direct labor hours or direct labor costs.

Question 10

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 11

An auditor generally tests physical security controls over inventory by

Accepted Answer

A)  Test counts and cutoff procedures. 
B)  Examination and reconciliation. 
C)  Inspection and recomputation. 
D)  Inquiry and observation. 
A)  Test counts and cutoff procedures. 
B)  Examination and reconciliation. 
C)  Inspection and recomputation. 
D)  Inquiry and observation.

Question 12

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

Accepted Answer

A)  Review the entity's description of inventory policies and procedures. 
B)  Perform test counts of inventory during the entity's physical count. 
C)  Analyze inventory turnover statistics to identify slow-moving and obsolete items. 
D)  Analyze monthly production reports to identify variances and unusual transactions. 
A)  Review the entity's description of inventory policies and procedures. 
B)  Perform test counts of inventory during the entity's physical count. 
C)  Analyze inventory turnover statistics to identify slow-moving and obsolete items. 
D)  Analyze monthly production reports to identify variances and unusual transactions.

Question 13

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 14

In a manufacturing company,which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

Accepted Answer

A)  Testing the computation of standard overhead rates. 
B)  Examining paid vendors' invoices. 
C)  Reviewing direct labor rates. 
D)  Obtaining confirmation of inventories pledged under loan agreements. 
A)  Testing the computation of standard overhead rates. 
B)  Examining paid vendors' invoices. 
C)  Reviewing direct labor rates. 
D)  Obtaining confirmation of inventories pledged under loan agreements.

Question 15

You are auditing SBT,which has a December 31st year-end.On December 24th,the person responsible for processing receiving reports and recording the receipt of inventory became very ill and was out of the office for a week.Due to the company's small staff and the holiday season,a number of the receiving reports were not processed on a timely basis.As an auditor,on which assertion would you place a high importance for this client and how would you test for it?

Accepted Answer

The cutoff assertion would be very impor

Question 16

The auditor tests the quantity of materials charged to work in process by tracing these quantities to

Accepted Answer

A)  Cost ledgers. 
B)  Perpetual inventory records. 
C)  Receiving reports. 
D)  Material requisitions. 
A)  Cost ledgers. 
B)  Perpetual inventory records. 
C)  Receiving reports. 
D)  Material requisitions.

Question 17

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 18

The audit of the inventory management process is affected by the audit results from multiple other processes.Identify the processes,other than the inventory management process,that affect the audit of inventory and explain how each affect the audit of inventory.

Accepted Answer

The inventory management process is affe

Question 19

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the client's physical inventories?

Accepted Answer

A)  Confirmation of goods in the hands of public warehouses. 
B)  Supervising the annual physical inventory count. 
C)  Carrying out physical inventory procedures at an interim date. 
D)  Obtaining written representation from the client as to the existence, quality and dollar amount of the inventory. 
A)  Confirmation of goods in the hands of public warehouses. 
B)  Supervising the annual physical inventory count. 
C)  Carrying out physical inventory procedures at an interim date. 
D)  Obtaining written representation from the client as to the existence, quality and dollar amount of the inventory.

Question 20

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.

Sale of finished goods is a part of the inventory management process.

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

The major control procedure for preventing fictitious inventory transactions from being recorded is proper segregation of duties.

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?

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.

The physical count of inventory of a retailer was higher than shown in its perpetual records.Which of the following could explain the difference?

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

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 safeguarding of inventory most likely includes

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

An auditor generally tests physical security controls over inventory by

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

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

In a manufacturing company,which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

The auditor tests the quantity of materials charged to work in process by tracing these quantities to

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

The audit of the inventory management process is affected by the audit results from multiple other processes.Identify the processes,other than the inventory management process,that affect the audit of inventory and explain how each affect the audit of inventory.

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the client's physical inventories?

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

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

Filters

Exam 21: Assurance,Attestation,and Internal Auditing Services

Sale of finished goods is a part of the inventory management process.

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

The major control procedure for preventing fictitious inventory transactions from being recorded is proper segregation of duties.

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?

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.

The physical count of inventory of a retailer was higher than shown in its perpetual records.Which of the following could explain the difference?

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

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 safeguarding of inventory most likely includes

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

An auditor generally tests physical security controls over inventory by

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

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

In a manufacturing company,which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

The auditor tests the quantity of materials charged to work in process by tracing these quantities to

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

The audit of the inventory management process is affected by the audit results from multiple other processes.Identify the processes,other than the inventory management process,that affect the audit of inventory and explain how each affect the audit of inventory.

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the client's physical inventories?

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

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

Filters