Exam 14: Auditing Inventory Processes: Tracking and Costing Products in the Land Development and Home Building Industry

Auditors are responsible for setting up procedures for a physical inventory count that will be observed by management

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(True/False)

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Question 1

Correct Answer:

Verified

False

Analytical procedures can help an auditor assess the reasonableness of the inventory balances by highlighting changes that:

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(Multiple Choice)

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Question 2

Correct Answer:

Verified

D

Which of the following is the method of allocating costs to individual residential units in the land development and home building industry?

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(Multiple Choice)

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Question 3

Correct Answer:

Verified

B

What estimates are included in the cost of inventory in the land development and home building industry? Specifically, what past costs are allocated? What future amounts must be predicted? What future amounts must be predicted and allocated? Distinguish

(Essay)

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Question 4

Which of the following is the most appropriate test for auditing inventory in the land development and home building industry?

(Multiple Choice)

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Question 5

Which of the following statements is true regarding the complex nature of inventory accounting in the land development and home building industry?

(Multiple Choice)

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Question 6

Observation is the form of audit evidence typically used for testing the operating effectiveness of many of the physical controls over inventory.

(True/False)

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Question 7

Which of the following is not a control concern for inventory?

(Multiple Choice)

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Question 8

Explain how auditing inventory of a company with a standard cost system requires an audit of estimates.What are the estimates? What procedures would the auditor perform related to variances produced by the system at year end? Why?

(Essay)

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Question 9

Land development and home building companies provide warranties for:

(Multiple Choice)

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Question 10

In accounting for inventory, the quality of estimates made by a client's management is directly related to:

(Multiple Choice)

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Question 11

One method for testing cutoff and in-transit inventory is for the auditor to examine shipping documents for a few days before and after year-end and determine whether the inventory records properly reflect the transaction in the correct period.

(True/False)

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Question 12

Over- and underapplied overhead variances are typically allocated among:

(Multiple Choice)

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Question 13

While auditing a client's inventory processes, an auditor computes the gross profit margin ratio and compares it to prior years and budgeted amounts. If the result indicates that the gross profit margin has increased since the prior year and exceeds the budget, it is likely that:

(Multiple Choice)

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Question 14

Which of the following is an appropriate substantive test of details of account balances for the inventory cycle for the verification of an accurate cutoff?

(Multiple Choice)

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Question 15

Which of the following is not an acceptable manner of testing an audit client's estimates?

(Multiple Choice)

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Question 16

At the end of the accounting period, adjustments for under- or overapplied overhead are simply posted to the inventory accounts.

(True/False)

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Question 17

A construction problem that is not immediately evident is referred to as a latent defect.

(True/False)

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Question 18

Physical controls over inventory are typically tested for operating effectiveness by:

(Multiple Choice)

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Question 19

Match the following control objectives below with the appropriate test of controls.

_____ Inspect documentation and reperform calculations of inventory value to identify and evaluation declines in value.

To ensure that cost accounting procedures are accurate

_____ Review management's policies for making estimates for reasonableness of underlying assumptions, relevant factors, and process.

To ensure that inventory in the production process is properly included in the work-in-process records

_____ Select samples from each category of inventory records and inspect the goods for physical existence and consistency with the category of inventory records.

To ensure that the work-in-process and finished goods inventory records are updated when production is completed

Correct Answer:

Verified

_____ Inspect documentation and reperform calculations of inventory value to identify and evaluation declines in value.

_____ Review management's policies for making estimates for reasonableness of underlying assumptions, relevant factors, and process.

_____ Select samples from each category of inventory records and inspect the goods for physical existence and consistency with the category of inventory records.

_____ Select a sample of work-in-process inventory and trace to the inventory records and supporting documents from purchasing and payroll.

_____ Evaluate whether management's inventory count controls and procedures are appropriate and observe inventory counting to assess whether the procedures are being followed.

_____ Select a sample of inventory for which production is complete and examine physical and documentary evidence showing that the items were transferred.

_____ Test the mathematical accuracy of any calculations performed on the results of the inventory count.

_____ Tour the storage and production facilities and observe the security procedures being used for inventory.

(Matching)

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Question 20

Auditors are responsible for setting up procedures for a physical inventory count that will be observed by management

Analytical procedures can help an auditor assess the reasonableness of the inventory balances by highlighting changes that:

Which of the following is the method of allocating costs to individual residential units in the land development and home building industry?

What estimates are included in the cost of inventory in the land development and home building industry? Specifically, what past costs are allocated? What future amounts must be predicted? What future amounts must be predicted and allocated? Distinguish

Which of the following is the most appropriate test for auditing inventory in the land development and home building industry?

Which of the following statements is true regarding the complex nature of inventory accounting in the land development and home building industry?

Observation is the form of audit evidence typically used for testing the operating effectiveness of many of the physical controls over inventory.

Which of the following is not a control concern for inventory?

Explain how auditing inventory of a company with a standard cost system requires an audit of estimates.What are the estimates? What procedures would the auditor perform related to variances produced by the system at year end? Why?

Land development and home building companies provide warranties for:

In accounting for inventory, the quality of estimates made by a client's management is directly related to:

One method for testing cutoff and in-transit inventory is for the auditor to examine shipping documents for a few days before and after year-end and determine whether the inventory records properly reflect the transaction in the correct period.

Over- and underapplied overhead variances are typically allocated among:

While auditing a client's inventory processes, an auditor computes the gross profit margin ratio and compares it to prior years and budgeted amounts. If the result indicates that the gross profit margin has increased since the prior year and exceeds the budget, it is likely that:

Which of the following is an appropriate substantive test of details of account balances for the inventory cycle for the verification of an accurate cutoff?

Which of the following is not an acceptable manner of testing an audit client's estimates?

At the end of the accounting period, adjustments for under- or overapplied overhead are simply posted to the inventory accounts.

A construction problem that is not immediately evident is referred to as a latent defect.

Physical controls over inventory are typically tested for operating effectiveness by:

An Introduction to Auditing

Overview of an Integrated Audit

The Auditors Role in Society

Legal Environment Affecting Audits Pt Iii Executing an Integrated Audit

Client Acceptance and Continuance and Preliminary Engagement Procedures

Audit Planning and Risk Assessment

Internal Control, Understanding the Clients Internal Control Over Financial Reporting and Auditing Design Effectiveness

Planning and Testing Operating Effectiveness of Internal Control Over Financial Reporting

Substantive Procedures and the Financial Statement Audit

Auditing Revenue Process: Sales, Billing and Collection in the Health-Care Provider and Retailing Industries

Completing the Integrated Audit and Reporting

The Acquisition and Payments Cycle and Related Accounts: Purchases, Cash Disbursements and Other Related Activities in the Automotive Industry

Auditing Human Resources Cycle Process: Personnel and Payroll in Service Industries

Assets, Liabilities and Equity Related to the Financing Cycle

Topics Beyond the Integrated Audit

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