Exam 13: Auditing the Inventory Management Process

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

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

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

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.

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

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

When outside firms of non-accountants specializing in physical inventory counts are used to count,list,price,and subsequently compute the total dollar amount of inventory on hand at the date of the physical count,the auditor will ordinarily

The audit of year-end physical inventories should include steps to verify that the entity's purchases and sales cutoffs were adequate.The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a

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

An auditor selected items for test counts while observing an entity's physical inventory.The auditor then traced the test counts to the entity's inventory listing.This procedure most likely provided evidence concerning management's assertion of

An approved purchase requisition form authorizes shipment of goods to customers.

An entity'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

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

Which of the following departments typically approves purchase requisitions?

Observing an entity's inventory held on consignment by others tests the assertion of

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

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

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

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.

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