Question 1

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 2

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 3

A receiving report records the shipment of goods to customers.

Accepted Answer

A) True 
 B)False

Question 4

The accuracy of perpetual inventory records may be established,in part,by comparing perpetual inventory records with

Accepted Answer

A)  purchase requisitions. 
B)  receiving reports. 
C)  purchase orders. 
D)  vendor payments. 
A)  purchase requisitions. 
B)  receiving reports. 
C)  purchase orders. 
D)  vendor payments.

Question 5

We know from cost accounting that there are three components that make up the standard costs for inventory.Explain how an auditor could test each of these components for a company that manufactures pillows.

Accepted Answer

Materials - The auditor could obtain a l

Question 6

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

Accepted Answer

A) True 
 B)False

Question 7

If the perpetual inventory records show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded

Accepted Answer

A)  sales. 
B)  sales discounts. 
C)  purchases. 
D)  purchase discounts. 
A)  sales. 
B)  sales discounts. 
C)  purchases. 
D)  purchase discounts.

Question 8

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 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  owned by the entity. 
B)  not obsolete. 
C)  physically present at the time of the preparation of the final inventory schedule. 
D)  included in the final inventory schedule. 
A)  owned by the entity. 
B)  not obsolete. 
C)  physically present at the time of the preparation of the final inventory schedule. 
D)  included in the final inventory schedule.

Question 11

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 12

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 13

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 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

A)  evidence to be gathered to provide a sufficient basis for the auditor's opinion. 
B)  procedures to be undertaken to discover litigation, claims, and assessments. 
C)  pending legal matters to be included in the inquiry of the entity's attorney. 
D)  timing of inventory observation procedures to be performed. 
A)  evidence to be gathered to provide a sufficient basis for the auditor's opinion. 
B)  procedures to be undertaken to discover litigation, claims, and assessments. 
C)  pending legal matters to be included in the inquiry of the entity's attorney. 
D)  timing of inventory observation procedures to be performed.

Question 16

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?

Accepted Answer

A)  Obsolete inventory. 
B)  New product line where sales exceed production. 
C)  Manufacturing overhead was not allocated to the production process. 
D)  Manufacturing salaries were recorded as administrative expenses. 
A)  Obsolete inventory. 
B)  New product line where sales exceed production. 
C)  Manufacturing overhead was not allocated to the production process. 
D)  Manufacturing salaries were recorded as administrative expenses.

Question 17

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 18

List five things an auditor should do during the observation of the physical count of inventory.

Accepted Answer

• Ensure that no production is scheduled

Question 19

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

Accepted Answer

A)  sales. 
B)  sales discounts. 
C)  purchases. 
D)  purchase returns. 
A)  sales. 
B)  sales discounts. 
C)  purchases. 
D)  purchase returns.

Question 20

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

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

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

A receiving report records the shipment of goods to customers.

The accuracy of perpetual inventory records may be established,in part,by comparing perpetual inventory records with

We know from cost accounting that there are three components that make up the standard costs for inventory.Explain how an auditor could test each of these components for a company that manufactures pillows.

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

If the perpetual inventory records show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded

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

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

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

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

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?

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

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?

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?

List five things an auditor should do during the observation of the physical count of inventory.

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

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.

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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

Filters

Exam 13: Auditing the Inventory Management Process

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

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

A receiving report records the shipment of goods to customers.

The accuracy of perpetual inventory records may be established,in part,by comparing perpetual inventory records with

We know from cost accounting that there are three components that make up the standard costs for inventory.Explain how an auditor could test each of these components for a company that manufactures pillows.

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

If the perpetual inventory records show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded

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

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

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

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

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?

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

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?

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?

List five things an auditor should do during the observation of the physical count of inventory.

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

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.

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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

Filters