Question 1

An inventory balance is immaterial when

Accepted Answer

A) knowing the correct balance would not change the decision of an outside user of the financial statements 
B) the balance includes obsolete inventory 
C) inventory is a long term asset 
D) the cash balance exceeds the inventory balance 
A) knowing the correct balance would not change the decision of an outside user of the financial statements 
B) the balance includes obsolete inventory 
C) inventory is a long term asset 
D) the cash balance exceeds the inventory balance

Question 2

Management assertions about the accounts in the inventory business process are

Accepted Answer

A) existence or occurrence - for account balances 
B) completeness - for classes of transactions 
C) valuation and allocation - for classes of transactions 
D) rights and obligations - for account balances 
E) accuracy - for both classes of transactions and account balances 
A) existence or occurrence - for account balances 
B) completeness - for classes of transactions 
C) valuation and allocation - for classes of transactions 
D) rights and obligations - for account balances 
E) accuracy - for both classes of transactions and account balances

Question 3

On the income statement,the inventory process is related to

Accepted Answer

A) cost of goods sold 
B) purchases of inventory 
C) accounts payable 
D) cash payments 
A) cost of goods sold 
B) purchases of inventory 
C) accounts payable 
D) cash payments

Question 4

The accounts in the inventory process are

Accepted Answer

A) inventory returns 
B) purchasing 
C) allowance to reduce inventory to LIFO value 
D) receiving 
E) allowance to reduce inventory to market value
F)both A and B
G)both C and E
H)both D and E 
A) inventory returns 
B) purchasing 
C) allowance to reduce inventory to LIFO value 
D) receiving 
E) allowance to reduce inventory to market value
F)both A and B
G)both C and E
H)both D and E

Question 5

Analytical procedures are used by the auditor to:

Accepted Answer

A) focus his or her attention on accounts where possible fraud exists 
B) focus his or her attention on accounts where the possibility of material misstatements is greatest 
C) focus his or her attention on accounts where procedures are inadequate 
D) focus his or her attention on accounts with unexpected change in the current year compared to the prior year 
A) focus his or her attention on accounts where possible fraud exists 
B) focus his or her attention on accounts where the possibility of material misstatements is greatest 
C) focus his or her attention on accounts where procedures are inadequate 
D) focus his or her attention on accounts with unexpected change in the current year compared to the prior year

Question 6

Overstatement and understatement misstatements about inventory have what effect on outsiders?

Accepted Answer

A) outsiders are mislead about the true value of the inventory sold 
B) outsiders are mislead about the correct valuation when the inventory is sold 
C) outsiders are mislead about the future cash flows when the inventory is sold 
D) outsiders are mislead about the future prices when the inventory is sold 
A) outsiders are mislead about the true value of the inventory sold 
B) outsiders are mislead about the correct valuation when the inventory is sold 
C) outsiders are mislead about the future cash flows when the inventory is sold 
D) outsiders are mislead about the future prices when the inventory is sold

Question 7

The auditor performs the following procedures during the physical inventory counting

Accepted Answer

A) identify the locations of the inventory and amounts of inventory at each location. 
B) observe the performance of the count procedures. 
C) use alternative audit procedures to obtain sufficient appropriate evidence regarding the existence and condition of the inventory. 
D) determine that inventory items on hand that are not owned by the client are identified. 
E) review the client's plans for taking inventory,including the process to count,control inventory tags or count sheets,the procedures for identifying obsolete items during the count,procedures for controlling the movement of inventory during the count,and the procedures for controlling shipping and receiving during the count.
F)both B and D
G)both C and D
H)both D and E 
A) identify the locations of the inventory and amounts of inventory at each location. 
B) observe the performance of the count procedures. 
C) use alternative audit procedures to obtain sufficient appropriate evidence regarding the existence and condition of the inventory. 
D) determine that inventory items on hand that are not owned by the client are identified. 
E) review the client's plans for taking inventory,including the process to count,control inventory tags or count sheets,the procedures for identifying obsolete items during the count,procedures for controlling the movement of inventory during the count,and the procedures for controlling shipping and receiving during the count.
F)both B and D
G)both C and D
H)both D and E

Question 8

Management assertions about the accounts in the inventory business process are

Accepted Answer

A) existence or occurrence - for account balances 
B) completeness - for both classes of transactions and account balances 
C) valuation and allocation - for both classes of transactions and account balances 
D) rights and obligations - for classes of transactions 
E) accuracy - for both classes of transactions and account balances 
A) existence or occurrence - for account balances 
B) completeness - for both classes of transactions and account balances 
C) valuation and allocation - for both classes of transactions and account balances 
D) rights and obligations - for classes of transactions 
E) accuracy - for both classes of transactions and account balances

Question 9

The cost accounting system determines the cost of the inventory manufactured by the company.

Accepted Answer

A) True 
 B)False

Question 10

How does the auditor gather evidence during the physical inventory count?

Accepted Answer

A) The auditor determines that the items on hand that are not owned by the client are counted. 
B) The auditor performs test counts at the same time the client is counting the inventory. 
C) Management observes that all inventory has been tagged and counted.The auditor verifies that management has performed this task. 
D) The auditor observes that client personnel are performing test counts in the areas where they are most familiar with the inventory. 
A) The auditor determines that the items on hand that are not owned by the client are counted. 
B) The auditor performs test counts at the same time the client is counting the inventory. 
C) Management observes that all inventory has been tagged and counted.The auditor verifies that management has performed this task. 
D) The auditor observes that client personnel are performing test counts in the areas where they are most familiar with the inventory.

Question 11

Early substantive testing of inventory balances is only done when

Accepted Answer

A) the client has a good system of internal controls relating to expense account balances 
B) the client has good policies and procedures relating to the account balances 
C) the client has a good system of internal controls relating to the account balances. 
D) the client has good policies and procedures relating to the account balances. 
A) the client has a good system of internal controls relating to expense account balances 
B) the client has good policies and procedures relating to the account balances 
C) the client has a good system of internal controls relating to the account balances. 
D) the client has good policies and procedures relating to the account balances.

Question 12

Management assertions about the accounts in the inventory business process are

Accepted Answer

A) existence or occurrence - for both classes of transactions and account balances 
B) completeness - for account balances 
C) valuation and allocation - for both classes of transactions and account balances 
D) rights and obligations - for classes of transactions 
E) accuracy - for account balances 
A) existence or occurrence - for both classes of transactions and account balances 
B) completeness - for account balances 
C) valuation and allocation - for both classes of transactions and account balances 
D) rights and obligations - for classes of transactions 
E) accuracy - for account balances

Question 13

The transactions audited in the inventory process include

Accepted Answer

A) determining the correct quality of the inventory 
B) internal controls relevant to transactions 
C) pricing the inventory according to client standards 
D) internal controls relevant to balances 
E) valuing the year-end inventory balance 
A) determining the correct quality of the inventory 
B) internal controls relevant to transactions 
C) pricing the inventory according to client standards 
D) internal controls relevant to balances 
E) valuing the year-end inventory balance

Question 14

Assume you are working on the audit of inventory at Ralph's Grocery Store. a. Identify the two most important management assertions relating to inventory and explain how you will gather audit evidence to determine that these assertions are true.
Assertion$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~$Evidence

b. What audit assertions would be the most important relating to the fixed assets of the store? Explain how you would gather audit evidence to verify these assertions.
Assertion$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~$Evidence

Accepted Answer

The answer of Assume you are working on the audit...

Question 15

The auditor is responsible,in the inventory process,for determining

Accepted Answer

A) only if the ending balance in the balance sheet account is stated in accordance with the applicable financial reporting framework 
B) only if the ending balance in the income statement account is stated in accordance with the applicable financial reporting framework 
C) only if the beginning balance in the balance sheet account is stated in accordance with the applicable financial reporting framework 
D) only if the beginning balance in the income statement account is stated in accordance with the applicable financial reporting framework 
A) only if the ending balance in the balance sheet account is stated in accordance with the applicable financial reporting framework 
B) only if the ending balance in the income statement account is stated in accordance with the applicable financial reporting framework 
C) only if the beginning balance in the balance sheet account is stated in accordance with the applicable financial reporting framework 
D) only if the beginning balance in the income statement account is stated in accordance with the applicable financial reporting framework

Question 16

The applicable financial reporting framework allows the audit client to determine both the cost and market value of inventory.Select the correct item(s)from the following list regarding these determinations:

Accepted Answer

A) The client must use FIFO to determine the cost of inventory at year-end.With FIFO,the client determines the cost of good sold using the earliest inventory items purchased. 
B) The client must use FIFO to determine the cost of inventory at year-end.With FIFO,the client determines the cost of good sold using the latest inventory items purchased. 
C) Because the market value of inventory is the most reliable measure of the value of the inventory,the market value of inventory is always stated at year-end. 
D) The client determines the market value of inventory by estimating the amount the inventory can be sold for at the end of the year. 
A) The client must use FIFO to determine the cost of inventory at year-end.With FIFO,the client determines the cost of good sold using the earliest inventory items purchased. 
B) The client must use FIFO to determine the cost of inventory at year-end.With FIFO,the client determines the cost of good sold using the latest inventory items purchased. 
C) Because the market value of inventory is the most reliable measure of the value of the inventory,the market value of inventory is always stated at year-end. 
D) The client determines the market value of inventory by estimating the amount the inventory can be sold for at the end of the year.

Question 17

The client determines the cost of inventory at year-end using

Accepted Answer

A) LIFO,FIFO,or actual cost 
B) FIFO,LIFO,or incurred cost 
C) FIFO,LIFO,or average cost 
D) FIFO,LISH,or average cost 
A) LIFO,FIFO,or actual cost 
B) FIFO,LIFO,or incurred cost 
C) FIFO,LIFO,or average cost 
D) FIFO,LISH,or average cost

Question 18

The inventory process involves the balance sheet accounts but not the income statements accounts.

Accepted Answer

A) True 
 B)False

Question 19

At the end of the audit,the auditor will decide whether the accounts in the inventory business process are presented in accordance with the applicable financial reporting framework.If they are not,the auditor will:

Accepted Answer

A) issue a "subject to" audit report citing the incorrect accounts 
B) issue an adverse report citing a GAAP non-compliance 
C) propose audit adjustments to correct the accounts 
D) assist the client in making adjustments to correct the accounts 
A) issue a "subject to" audit report citing the incorrect accounts 
B) issue an adverse report citing a GAAP non-compliance 
C) propose audit adjustments to correct the accounts 
D) assist the client in making adjustments to correct the accounts

Question 20

The perpetual inventory system records additions to inventory as inventory is manufactured or purchased and deletions from inventory as inventory is sold.But they do not record

Accepted Answer

A) one time special purchases 
B) stolen items 
C) inventory rebates estimating inventory requirements 
D) errors in recording inventory transactions 
E) costs in the manufacturing process
F)both A and C
G)both B and D
H)both D and E 
A) one time special purchases 
B) stolen items 
C) inventory rebates estimating inventory requirements 
D) errors in recording inventory transactions 
E) costs in the manufacturing process
F)both A and C
G)both B and D
H)both D and E

An inventory balance is immaterial when

Management assertions about the accounts in the inventory business process are

On the income statement,the inventory process is related to

The accounts in the inventory process are

Analytical procedures are used by the auditor to:

Overstatement and understatement misstatements about inventory have what effect on outsiders?

The auditor performs the following procedures during the physical inventory counting

Management assertions about the accounts in the inventory business process are

The cost accounting system determines the cost of the inventory manufactured by the company.

How does the auditor gather evidence during the physical inventory count?

Early substantive testing of inventory balances is only done when

Management assertions about the accounts in the inventory business process are

The transactions audited in the inventory process include

The auditor is responsible,in the inventory process,for determining

The applicable financial reporting framework allows the audit client to determine both the cost and market value of inventory.Select the correct item(s)from the following list regarding these determinations:

The client determines the cost of inventory at year-end using

The inventory process involves the balance sheet accounts but not the income statements accounts.

At the end of the audit,the auditor will decide whether the accounts in the inventory business process are presented in accordance with the applicable financial reporting framework.If they are not,the auditor will:

The perpetual inventory system records additions to inventory as inventory is manufactured or purchased and deletions from inventory as inventory is sold.But they do not record

What Is Auditing

The Audit Planning Process: Understanding the Risk of Material Misstatement

Internal Controls

Auditing the Revenue Business Process

Audit Evidence and the Auditors Responsibility for Fraud Detection

Auditing the Acquisition and Expenditure Business Process

Audit Sampling: Tests of Internal Controls

Audit Sampling: Substantive Tests of Details

Cash and Investment Business Processes

Long-Term Debt and Owners Equity Business Process

Completing the Audit

Audit Reports

The Auditing Profession Glossary

Filters

Exam 7: Auditing the Inventory Business Process

An inventory balance is immaterial when

Management assertions about the accounts in the inventory business process are

On the income statement,the inventory process is related to

The accounts in the inventory process are

Analytical procedures are used by the auditor to:

Overstatement and understatement misstatements about inventory have what effect on outsiders?

The auditor performs the following procedures during the physical inventory counting

Management assertions about the accounts in the inventory business process are

The cost accounting system determines the cost of the inventory manufactured by the company.

How does the auditor gather evidence during the physical inventory count?

Early substantive testing of inventory balances is only done when

Management assertions about the accounts in the inventory business process are

The transactions audited in the inventory process include

The auditor is responsible,in the inventory process,for determining

The applicable financial reporting framework allows the audit client to determine both the cost and market value of inventory.Select the correct item(s)from the following list regarding these determinations:

The client determines the cost of inventory at year-end using

The inventory process involves the balance sheet accounts but not the income statements accounts.

At the end of the audit,the auditor will decide whether the accounts in the inventory business process are presented in accordance with the applicable financial reporting framework.If they are not,the auditor will:

The perpetual inventory system records additions to inventory as inventory is manufactured or purchased and deletions from inventory as inventory is sold.But they do not record

What Is Auditing

The Audit Planning Process: Understanding the Risk of Material Misstatement

Internal Controls

Auditing the Revenue Business Process

Audit Evidence and the Auditors Responsibility for Fraud Detection

Auditing the Acquisition and Expenditure Business Process

Audit Sampling: Tests of Internal Controls

Audit Sampling: Substantive Tests of Details

Cash and Investment Business Processes

Long-Term Debt and Owners Equity Business Process

Completing the Audit

Audit Reports

The Auditing Profession Glossary

Filters