Question 1

The auditor is required by GAAP to observe the taking of physical inventory.

Accepted Answer

A) True 
 B)False  False

Question 2

Prenumbered receiving documents establish the completeness of the population and are useful in determining that all goods are recorded in the correct period.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following is not a standard procedure that the auditor normally should follow in the observation of inventory at year-end?

Accepted Answer

A) observe the client taking inventory. 
B) make selected test counts and trace into client's inventory compilation. 
C) look for slow-moving,obsolete or damaged inventory. 
D) review disclosure of inventory valuation. 
E) all of the above are standard audit procedures in the observation of inventory. 
A) observe the client taking inventory. 
B) make selected test counts and trace into client's inventory compilation. 
C) look for slow-moving,obsolete or damaged inventory. 
D) review disclosure of inventory valuation. 
E) all of the above are standard audit procedures in the observation of inventory. D

Question 4

The principle of lower of cost or market and the potential obsolescence of inventory are a concern for the audit team as

Accepted Answer

A) they are uncommon and may not exist. 
B) they are a burden to the auditor in the undue amount of work caused. 
C) they are likely to occur in the last month of the year and cause cutoff problems. 
D) they are an inherent component of complexity related to valuation. 
A) they are uncommon and may not exist. 
B) they are a burden to the auditor in the undue amount of work caused. 
C) they are likely to occur in the last month of the year and cause cutoff problems. 
D) they are an inherent component of complexity related to valuation.

Question 5

The lower of cost or market assumption is not important to valuation of inventory.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following must the auditor best understand relative to the supply chain when auditing a manufacturing company?

Accepted Answer

A) Contract terms,the method of recording and title transfer. 
B) Efficiency of operations,purchasing agent compensation and disbursement. 
C) Productivity of equipment,cost of capital,and maintenance schedules 
D) Quality of scrap,point of sale and carrying costs. 
A) Contract terms,the method of recording and title transfer. 
B) Efficiency of operations,purchasing agent compensation and disbursement. 
C) Productivity of equipment,cost of capital,and maintenance schedules 
D) Quality of scrap,point of sale and carrying costs.

Question 7

The auditor tests significant repairs and maintenance expenses to ensure that an item that should be capitalized has not been expensed.

Accepted Answer

A) True 
 B)False

Question 8

The acquisition cycle begins with the receipt of goods and services and ends with their payment as reflected in cash disbursements.

Accepted Answer

A) True 
 B)False

Question 9

The auditor must test a manufacturing client's cost system to substantiate the valuation of a inventory.

Accepted Answer

A) True 
 B)False

Question 10

In testing the reasonableness of expense accounts in auditing the acquisition cycle,when the auditor has concluded that internal control risk is high the major substantive tests may be gathering evidence through analytical procedures.

Accepted Answer

A) True 
 B)False

Question 11

Inventory may become obsolete because of technological advances even though there are no signs of physical wear and tear.

Accepted Answer

A) True 
 B)False

Question 12

The acquisition and payment process consists of each of the following phases except

Accepted Answer

A) shipments of goods and services. 
B) approval of items for payment. 
C) cash disbursements. 
D) authorized purchases of goods and services. 
A) shipments of goods and services. 
B) approval of items for payment. 
C) cash disbursements. 
D) authorized purchases of goods and services.

Question 13

An auditor would review the direct labor costs charged to inventory when auditing a manufacturing company.

Accepted Answer

A) True 
 B)False

Question 14

Auditing accounts payable
What are the procedures available to auditors in auditing accounts payable and what level of assurance is obtained by each? Describe at least three.Which primary assertion is tested through these approaches?

Accepted Answer

When auditing accounts payable,the audit

Question 15

A major control benefit of a centralized purchasing department is the segregation of the authorization function from the custody and recording functions.

Accepted Answer

A) True 
 B)False

Question 16

In observing the client's inventory at year-end the auditor makes test counts that are later traced into the client's inventory compilation.

Accepted Answer

A) True 
 B)False

Question 17

Reduction of the risk of understated payables can be accomplished by focusing on which assertion?

Accepted Answer

A) existence 
B) rights 
C) presentation and disclosure 
D) completeness 
A) existence 
B) rights 
C) presentation and disclosure 
D) completeness

Question 18

An auditor can utilize a cross-sectional analysis for a client operating in multiple locations to identify areas of further inventory testing.

Accepted Answer

A) True 
 B)False

Question 19

The acquisition process begins with a purchase of goods or services

Accepted Answer

A) True 
 B)False

Question 20

Auditing the valuation assertion for inventory of a client utilizing the FIFO cost flow assumption will require the auditor to examine

Accepted Answer

A) invoices representing the more recent purchases of inventory. 
B) invoices representing the purchase of base year inventory in the year of inception. 
C) shipping documents for a sample of cost of goods sold transactions during the year. 
D) shipping documents for a sample of units on hand in the interim period. 
A) invoices representing the more recent purchases of inventory. 
B) invoices representing the purchase of base year inventory in the year of inception. 
C) shipping documents for a sample of cost of goods sold transactions during the year. 
D) shipping documents for a sample of units on hand in the interim period.

The auditor is required by GAAP to observe the taking of physical inventory.

Prenumbered receiving documents establish the completeness of the population and are useful in determining that all goods are recorded in the correct period.

Which of the following is not a standard procedure that the auditor normally should follow in the observation of inventory at year-end?

The principle of lower of cost or market and the potential obsolescence of inventory are a concern for the audit team as

The lower of cost or market assumption is not important to valuation of inventory.

Which one of the following must the auditor best understand relative to the supply chain when auditing a manufacturing company?

The auditor tests significant repairs and maintenance expenses to ensure that an item that should be capitalized has not been expensed.

The acquisition cycle begins with the receipt of goods and services and ends with their payment as reflected in cash disbursements.

The auditor must test a manufacturing client's cost system to substantiate the valuation of a inventory.

In testing the reasonableness of expense accounts in auditing the acquisition cycle,when the auditor has concluded that internal control risk is high the major substantive tests may be gathering evidence through analytical procedures.

Inventory may become obsolete because of technological advances even though there are no signs of physical wear and tear.

The acquisition and payment process consists of each of the following phases except

An auditor would review the direct labor costs charged to inventory when auditing a manufacturing company.

Auditing accounts payable What are the procedures available to auditors in auditing accounts payable and what level of assurance is obtained by each? Describe at least three.Which primary assertion is tested through these approaches?

A major control benefit of a centralized purchasing department is the segregation of the authorization function from the custody and recording functions.

In observing the client's inventory at year-end the auditor makes test counts that are later traced into the client's inventory compilation.

Reduction of the risk of understated payables can be accomplished by focusing on which assertion?

An auditor can utilize a cross-sectional analysis for a client operating in multiple locations to identify areas of further inventory testing.

The acquisition process begins with a purchase of goods or services

Auditing the valuation assertion for inventory of a client utilizing the FIFO cost flow assumption will require the auditor to examine

Auditing: Integral to the Economy

Corporate Governance and Audits

Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards

Audit Risk,business Risk,and Audit Planning

Internal Control Over Financial Reporting

Performing an Integrated Audit

A Framework for Audit Evidence

Tools Used in Gathering Audit Evidence

Auditing for Fraud

Auditing Revenue and Related Accounts

Audit of Cash and Other Liquid Assets

Audit of Long-Lived Assets and Related Expense Accounts

Audit of Longer-Term Liabilities, equity, acquisitions, and Related-Entity Transactions, long-Term Liabilities, and Equity

Ensuring Audit Quality in Completing the Audit

Auditors Reports

Professional Liability

Advanced Topics Concerning Complex Audit Judgments

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Exam 11: Audit of Acquisition and Payment Cycle and Inventory

The auditor is required by GAAP to observe the taking of physical inventory.

Prenumbered receiving documents establish the completeness of the population and are useful in determining that all goods are recorded in the correct period.

Which of the following is not a standard procedure that the auditor normally should follow in the observation of inventory at year-end?

The principle of lower of cost or market and the potential obsolescence of inventory are a concern for the audit team as

The lower of cost or market assumption is not important to valuation of inventory.

Which one of the following must the auditor best understand relative to the supply chain when auditing a manufacturing company?

The auditor tests significant repairs and maintenance expenses to ensure that an item that should be capitalized has not been expensed.

The acquisition cycle begins with the receipt of goods and services and ends with their payment as reflected in cash disbursements.

The auditor must test a manufacturing client's cost system to substantiate the valuation of a inventory.

In testing the reasonableness of expense accounts in auditing the acquisition cycle,when the auditor has concluded that internal control risk is high the major substantive tests may be gathering evidence through analytical procedures.

Inventory may become obsolete because of technological advances even though there are no signs of physical wear and tear.

The acquisition and payment process consists of each of the following phases except

An auditor would review the direct labor costs charged to inventory when auditing a manufacturing company.

Auditing accounts payable What are the procedures available to auditors in auditing accounts payable and what level of assurance is obtained by each? Describe at least three.Which primary assertion is tested through these approaches?

A major control benefit of a centralized purchasing department is the segregation of the authorization function from the custody and recording functions.

In observing the client's inventory at year-end the auditor makes test counts that are later traced into the client's inventory compilation.

Reduction of the risk of understated payables can be accomplished by focusing on which assertion?

An auditor can utilize a cross-sectional analysis for a client operating in multiple locations to identify areas of further inventory testing.

The acquisition process begins with a purchase of goods or services

Auditing the valuation assertion for inventory of a client utilizing the FIFO cost flow assumption will require the auditor to examine

Auditing: Integral to the Economy

Corporate Governance and Audits

Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards

Audit Risk,business Risk,and Audit Planning

Internal Control Over Financial Reporting

Performing an Integrated Audit

A Framework for Audit Evidence

Tools Used in Gathering Audit Evidence

Auditing for Fraud

Auditing Revenue and Related Accounts

Audit of Cash and Other Liquid Assets

Audit of Long-Lived Assets and Related Expense Accounts

Audit of Longer-Term Liabilities, equity, acquisitions, and Related-Entity Transactions, long-Term Liabilities, and Equity

Ensuring Audit Quality in Completing the Audit

Auditors Reports

Professional Liability

Advanced Topics Concerning Complex Audit Judgments

Filters