Question 1

The accounts in the inventory process are

Accepted Answer

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

Question 2

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 begins the test count process after the client has finished counting the inventory. 
C) Management determines if all inventory has been tagged and counted.The auditor asks management if this task has been done. 
D) The auditor determines whether the inventory count tags are properly controlled and that all count tags are returned. 
A) The auditor determines that the items on hand that are not owned by the client are counted. 
B) The auditor begins the test count process after the client has finished counting the inventory. 
C) Management determines if all inventory has been tagged and counted.The auditor asks management if this task has been done. 
D) The auditor determines whether the inventory count tags are properly controlled and that all count tags are returned.

Question 3

Inventory is recorded at cost when purchased.The cost of the inventory is

Accepted Answer

A) the purchase price 
B) the purchase price less any purchase discounts 
C) all expenditures necessary to obtain the inventory 
D) the purchase price less any discounts plus any financing charges 
A) the purchase price 
B) the purchase price less any purchase discounts 
C) all expenditures necessary to obtain the inventory 
D) the purchase price less any discounts plus any financing charges

Question 4

The internal controls that determine the accuracy of the perpetual inventory file were tested in the revenue process and the purchase and acquisition process because

Accepted Answer

A) these processes involve movement of inventory in and out of the perpetual inventory account 
B) these processes involve reconciliation of inventory in the perpetual inventory account 
C) these processes involve verification of inventory in the perpetual inventory account 
D) these processes involve observation of inventory in the perpetual inventory account 
A) these processes involve movement of inventory in and out of the perpetual inventory account 
B) these processes involve reconciliation of inventory in the perpetual inventory account 
C) these processes involve verification of inventory in the perpetual inventory account 
D) these processes involve observation of inventory in the perpetual inventory account

Question 5

The accounting rule,"lower of cost or market," reflects

Accepted Answer

A) a logical approach to inventory valuation 
B) a rational approach to inventory valuation 
C) a conservative approach to inventory valuation 
D) an aggressive approach to inventory valuation 
A) a logical approach to inventory valuation 
B) a rational approach to inventory valuation 
C) a conservative approach to inventory valuation 
D) an aggressive approach to inventory valuation

Question 6

Depending on the controls in the cost accounting system,the auditor may choose

Accepted Answer

A) to verify raw materials by reviewing purchase orders for raw materials 
B) to verify raw materials by reviewing purchase invoices for raw materials 
C) to verify direct labor by reviewing department records for direct labor costs 
D) to verify direct labor by reviewing payroll budgets for direct labor costs 
E) to verify direct labor by reviewing payroll records for direct labor costs
F)both A and C
G)both B and D
H)Both B and E 
A) to verify raw materials by reviewing purchase orders for raw materials 
B) to verify raw materials by reviewing purchase invoices for raw materials 
C) to verify direct labor by reviewing department records for direct labor costs 
D) to verify direct labor by reviewing payroll budgets for direct labor costs 
E) to verify direct labor by reviewing payroll records for direct labor costs
F)both A and C
G)both B and D
H)Both B and E

Question 7

In the inventory process,the auditor might perform the following analytical procedures

Accepted Answer

A) Compare inventory balances by category - raw material,work-in-process,and finished goods - for the current year with the prior year. 
B) Compare inventory purchases by category - raw material,work-in-process,and finished goods - for the current year with the prior year. 
C) Compute gross margin for the current year and compare with the prior year.Investigate any unexpected changes in the ratio. 
D) Compute cost of goods sold with the current year with the prior year.Investigate any unexpected changes in the ratio. 
E) Compute raw material turnover.Compare the current year's turnover to the prior year.Investigate any differences.
F)both A and C
G)both B and D
H)both D and E 
A) Compare inventory balances by category - raw material,work-in-process,and finished goods - for the current year with the prior year. 
B) Compare inventory purchases by category - raw material,work-in-process,and finished goods - for the current year with the prior year. 
C) Compute gross margin for the current year and compare with the prior year.Investigate any unexpected changes in the ratio. 
D) Compute cost of goods sold with the current year with the prior year.Investigate any unexpected changes in the ratio. 
E) Compute raw material turnover.Compare the current year's turnover to the prior year.Investigate any differences.
F)both A and C
G)both B and D
H)both D and E

Question 8

Substantive audit procedures in the inventory process are

Accepted Answer

A) inspection of records,documents,or tangible assets 
B) reviewing policies and procedures 
C) monitoring 
D) risk assessment 
E) confirmation
F)both A and B
G)both A and E
H)both C and D 
A) inspection of records,documents,or tangible assets 
B) reviewing policies and procedures 
C) monitoring 
D) risk assessment 
E) confirmation
F)both A and B
G)both A and E
H)both C and D

Question 9

If the auditor selects the sample of inventory items on the final inventory listing to perform price tests,the auditor gathers evidence about which assertion(s)?

Accepted Answer

A) existence and occurrence. 
B) accuracy. 
C) valuation or allocation. 
D) completeness. 
E) presentation and disclosure. 
A) existence and occurrence. 
B) accuracy. 
C) valuation or allocation. 
D) completeness. 
E) presentation and disclosure.

Question 10

If the inventory is material to the financial statements,the auditing standards require the auditor to obtain sufficient appropriate evidence regarding the existence and condition of inventory by

Accepted Answer

A) observing physical inventory 
B) performing audit procedures over the company's final inventory to determine whether they accurately reflect the actual inventory count results 
C) performing audit procedures over the company's interim inventory to determine whether they accurately reflect the actual inventory count results 
D) performing audit procedures over the company's final inventory to determine whether they accurately reflect the estimated inventory count results 
E) taking the physical inventory
F)both A and B
G)both B and D
H)both D and E 
A) observing physical inventory 
B) performing audit procedures over the company's final inventory to determine whether they accurately reflect the actual inventory count results 
C) performing audit procedures over the company's interim inventory to determine whether they accurately reflect the actual inventory count results 
D) performing audit procedures over the company's final inventory to determine whether they accurately reflect the estimated inventory count results 
E) taking the physical inventory
F)both A and B
G)both B and D
H)both D and E

Question 11

The inventory physical count gives the company inventory quantities that must be priced to arrive at the ending inventory balance reported on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 12

If the auditor selects the sample of inventory items to count from the inventory on the warehouse shelves,the auditor gathers evidence about which assertion(s)?

Accepted Answer

A) existence and occurrence. 
B) accuracy. 
C) valuation or allocation. 
D) completeness. 
E) presentation and disclosure. 
A) existence and occurrence. 
B) accuracy. 
C) valuation or allocation. 
D) completeness. 
E) presentation and disclosure.

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

Question 14

The client may use a variety of methods to overstate inventory.These include

Accepted Answer

A) inaccurate purchase history 
B) inaccurate inventory expense recording 
C) incorrect recognition of manufacturer rebates 
D) incorrect LIFO reserve calculations 
E) writing off obsolete inventory
F)both A and B
G)both C and D 
A) inaccurate purchase history 
B) inaccurate inventory expense recording 
C) incorrect recognition of manufacturer rebates 
D) incorrect LIFO reserve calculations 
E) writing off obsolete inventory
F)both A and B
G)both C and D

Question 15

If attendance at physical inventory counting is impracticable,the auditor must

Accepted Answer

A) identify the locations of the inventory and amounts of inventory at each location. 
B) evaluate whether the involvement of specialists is needed. 
C) use alternative audit procedures to obtain sufficient appropriate evidence regarding the existence and condition of the inventory. 
D) 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. 
A) identify the locations of the inventory and amounts of inventory at each location. 
B) evaluate whether the involvement of specialists is needed. 
C) use alternative audit procedures to obtain sufficient appropriate evidence regarding the existence and condition of the inventory. 
D) 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.

Question 16

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 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 classes of transactions 
C) valuation and allocation - for account balances 
D) rights and obligations - for classes of transactions 
E) accuracy - for both classes of transactions and account balances

Question 17

In the inventory process,the auditor might perform the following analytical procedures

Accepted Answer

A) Compare inventory balances by category - raw material,work-in-process,and finished goods - for the current year with the prior year. 
B) Compare inventory purchases by category - raw material,work-in-process,and finished goods - for the current year with the prior year. 
C) Compute material margin with the current year with the prior year.Investigate any unexpected changes in the ratio. 
D) Compute cost of goods sold with the current year with the prior year.Investigate any unexpected changes in the ratio. 
E) Compute inventory turnover.Compare the current year's turnover to the prior year.Investigate any differences.
F)both A and C
G)both B and D
H)Both A and E 
A) Compare inventory balances by category - raw material,work-in-process,and finished goods - for the current year with the prior year. 
B) Compare inventory purchases by category - raw material,work-in-process,and finished goods - for the current year with the prior year. 
C) Compute material margin with the current year with the prior year.Investigate any unexpected changes in the ratio. 
D) Compute cost of goods sold with the current year with the prior year.Investigate any unexpected changes in the ratio. 
E) Compute inventory turnover.Compare the current year's turnover to the prior year.Investigate any differences.
F)both A and C
G)both B and D
H)Both A and E

Question 18

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 begins the test count process after the client has finished counting the inventory. 
C) The auditor observes that all inventory has been tagged and counted. 
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 begins the test count process after the client has finished counting the inventory. 
C) The auditor observes that all inventory has been tagged and counted. 
D) The auditor observes that client personnel are performing test counts in the areas where they are most familiar with the inventory.

Question 19

It is the auditor's job to review the client's estimate of obsolete inventory to evaluate whether the ending inventory balance has been determined in accordance with the applicable financial reporting framework.To do this,the auditor considers whether the inventory balance includes

Accepted Answer

A) only inventory the client expects to sell in the future 
B) inventory that the client does not own 
C) inventory that has not been paid for at the end of the year 
D) inventory valued at the lower of cost or market 
E) both A and C
F)both A and D
G)both D and E 
A) only inventory the client expects to sell in the future 
B) inventory that the client does not own 
C) inventory that has not been paid for at the end of the year 
D) inventory valued at the lower of cost or market 
E) both A and C
F)both A and D
G)both D and E

Question 20

The appropriate journal entry for the transactions involving the LIFO reserve and market value adjustments is determined by the particular situation in the firm.If LIFO inventory is greater than FIFO inventory,

Accepted Answer

A) the loss account for a decline in market value of inventory could be credited rather than debited if the market value had increased from the previous year but was not greater than cost 
B) the loss account for a decline in market value of inventory could be debited rather than credited if the market value had decreased from the previous year but was not less than cost 
C) the loss account for a decline in market value of inventory could be debited rather than credited if the market value had increased from the previous year but was not greater than cost 
D) the loss account for a decline in market value of inventory could be credited rather than debited if the market value had decreased from the previous year but was not greater than cost 
A) the loss account for a decline in market value of inventory could be credited rather than debited if the market value had increased from the previous year but was not greater than cost 
B) the loss account for a decline in market value of inventory could be debited rather than credited if the market value had decreased from the previous year but was not less than cost 
C) the loss account for a decline in market value of inventory could be debited rather than credited if the market value had increased from the previous year but was not greater than cost 
D) the loss account for a decline in market value of inventory could be credited rather than debited if the market value had decreased from the previous year but was not greater than cost

The accounts in the inventory process are

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

Inventory is recorded at cost when purchased.The cost of the inventory is

The internal controls that determine the accuracy of the perpetual inventory file were tested in the revenue process and the purchase and acquisition process because

The accounting rule,"lower of cost or market," reflects

Depending on the controls in the cost accounting system,the auditor may choose

In the inventory process,the auditor might perform the following analytical procedures

Substantive audit procedures in the inventory process are

If the auditor selects the sample of inventory items on the final inventory listing to perform price tests,the auditor gathers evidence about which assertion(s)?

If the inventory is material to the financial statements,the auditing standards require the auditor to obtain sufficient appropriate evidence regarding the existence and condition of inventory by

The inventory physical count gives the company inventory quantities that must be priced to arrive at the ending inventory balance reported on the balance sheet.

If the auditor selects the sample of inventory items to count from the inventory on the warehouse shelves,the auditor gathers evidence about which assertion(s)?

The transactions audited in the inventory process include

The client may use a variety of methods to overstate inventory.These include

If attendance at physical inventory counting is impracticable,the auditor must

Management assertions about the accounts in the inventory business process are

In the inventory process,the auditor might perform the following analytical procedures

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

It is the auditor's job to review the client's estimate of obsolete inventory to evaluate whether the ending inventory balance has been determined in accordance with the applicable financial reporting framework.To do this,the auditor considers whether the inventory balance includes

The appropriate journal entry for the transactions involving the LIFO reserve and market value adjustments is determined by the particular situation in the firm.If LIFO inventory is greater than FIFO inventory,

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

The accounts in the inventory process are

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

Inventory is recorded at cost when purchased.The cost of the inventory is

The internal controls that determine the accuracy of the perpetual inventory file were tested in the revenue process and the purchase and acquisition process because

The accounting rule,"lower of cost or market," reflects

Depending on the controls in the cost accounting system,the auditor may choose

In the inventory process,the auditor might perform the following analytical procedures

Substantive audit procedures in the inventory process are

If the auditor selects the sample of inventory items on the final inventory listing to perform price tests,the auditor gathers evidence about which assertion(s)?

If the inventory is material to the financial statements,the auditing standards require the auditor to obtain sufficient appropriate evidence regarding the existence and condition of inventory by

The inventory physical count gives the company inventory quantities that must be priced to arrive at the ending inventory balance reported on the balance sheet.

If the auditor selects the sample of inventory items to count from the inventory on the warehouse shelves,the auditor gathers evidence about which assertion(s)?

The transactions audited in the inventory process include

The client may use a variety of methods to overstate inventory.These include

If attendance at physical inventory counting is impracticable,the auditor must

Management assertions about the accounts in the inventory business process are

In the inventory process,the auditor might perform the following analytical procedures

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

It is the auditor's job to review the client's estimate of obsolete inventory to evaluate whether the ending inventory balance has been determined in accordance with the applicable financial reporting framework.To do this,the auditor considers whether the inventory balance includes

The appropriate journal entry for the transactions involving the LIFO reserve and market value adjustments is determined by the particular situation in the firm.If LIFO inventory is greater than FIFO inventory,

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