Question 1

List the procedures that should be adopted in a physical inventory count.

Accepted Answer

-Assigning and communicating responsibility for the count.
-Preparation of the area to be counted, including cut-off procedures.
-Clear identification of the inventory to be counted.
-Procedures for the actual count, ideally conducted in pairs.
-Checking procedures for the accuracy of the count.
-Progressive clearing of counted areas by a supervisor.
-Recording the inventory count tags onto the inventory count sheets.
-Follow-up of cut-off procedures to ensure accurate count.

Question 2

Observation of inventory counts is a required audit procedure whenever

Accepted Answer

A)  inventories are material. 
B)  it is practicable to do so. 
C)  inventories are material and it is practicable to do so. 
D)  inventories are material and the auditor considers it to be necessary. 
A)  inventories are material. 
B)  it is practicable to do so. 
C)  inventories are material and it is practicable to do so. 
D)  inventories are material and the auditor considers it to be necessary. C

Question 3

When an asset is shown on the financial statements other than at cost, which of the following is not required to be disclosed?

Accepted Answer

A)  the evidence gathered to support the valuation 
B)  the year and basis of valuation 
C)  whether it is an internal or independent valuation 
D)  the name of the valuer 
A)  the evidence gathered to support the valuation 
B)  the year and basis of valuation 
C)  whether it is an internal or independent valuation 
D)  the name of the valuer A

Question 4

What should an auditor do to ensure that inventory is stated at the lower of cost and net realizable value?

Accepted Answer

A)  Select a sample of inventory purchases made during the year and check the associated invoice to ensure they are not recorded at more than that value 
B)  review and test the process used by management, use an independent estimate and review subsequent events 
C)  ensure that all inventory items on hand at year-end have been properly recorded at cost when purchased. 
D)  ensure that inventory that is not saleable is disclosed separately in the financial report 
A)  Select a sample of inventory purchases made during the year and check the associated invoice to ensure they are not recorded at more than that value 
B)  review and test the process used by management, use an independent estimate and review subsequent events 
C)  ensure that all inventory items on hand at year-end have been properly recorded at cost when purchased. 
D)  ensure that inventory that is not saleable is disclosed separately in the financial report

Question 5

Cyclical inventory counts differ from full inventory counts in which way?

Accepted Answer

A)  cyclical inventory counts are performed at balance date 
B)  cyclical inventory counts are only performed by internal audit 
C)  cyclical inventory counts may involve counting only a portion of inventory items 
D)  They differ in all of the above ways. 
A)  cyclical inventory counts are performed at balance date 
B)  cyclical inventory counts are only performed by internal audit 
C)  cyclical inventory counts may involve counting only a portion of inventory items 
D)  They differ in all of the above ways.

Question 6

An important procedure for the conduct of a physical inventory count is to maintain control over the count systems. Which of the following is not a common count system?

Accepted Answer

A)  use of pre-printed inventory count sheets 
B)  use of blank inventory tags 
C)  use of blank, pre-numbered inventory count sheets 
D)  use of pre-numbered, three-part inventory tags 
A)  use of pre-printed inventory count sheets 
B)  use of blank inventory tags 
C)  use of blank, pre-numbered inventory count sheets 
D)  use of pre-numbered, three-part inventory tags

Question 7

Confirmation of inventories in public warehouses cannot provide evidence concerning the

Accepted Answer

A)  existence assertion. 
B)  completeness assertion. 
C)  accuracy, valuation and allocation assertion. 
D)  it cannot provide evidence concerning any of the listed assertions. 
A)  existence assertion. 
B)  completeness assertion. 
C)  accuracy, valuation and allocation assertion. 
D)  it cannot provide evidence concerning any of the listed assertions.

Question 8

Inventories received before the period-end are recorded as current purchases and those received after the period end are included in the next period. What assertion is being described?

Accepted Answer

A)  cut-off 
B)  checking 
C)  counting 
D)  preparation 
A)  cut-off 
B)  checking 
C)  counting 
D)  preparation

Question 9

List the four separate functions of maintaining inventory records.
Identify the documentation used in each function to prevent inventory records from being manipulated.

Accepted Answer

Recording the movement of goods into inv

Question 10

A capital asset sub-ledger details individual items of plant and equipment and records
the cost of each asset and of any additions or alterations, and the accumulated depreciation
charged against it.

Accepted Answer

A) True 
 B)False

Question 11

The timing of a physical count of inventory is negotiated between the auditor and management. If the assessed level of control risk is high, an auditor would probably

Accepted Answer

A)  insist that the entity performs physical counts of inventory several times during the year. 
B)  apply gross profit tests to ascertain the reasonableness of the physical counts. 
C)  increase the extent of tests of control of the inventory cycle. 
D)  request the entity to schedule the physical count at the end of the year. 
A)  insist that the entity performs physical counts of inventory several times during the year. 
B)  apply gross profit tests to ascertain the reasonableness of the physical counts. 
C)  increase the extent of tests of control of the inventory cycle. 
D)  request the entity to schedule the physical count at the end of the year.

Question 12

When the client engages an inventory specialist to take the inventory, the impact on the audit in this area is

Accepted Answer

A)  to eliminate the need to perform test counts. 
B)  to eliminate the need to observe the inventory. 
C)  minimal because the specialists are considered independent auditors. 
D)  minimal because the specialists are considered audit employees. 
A)  to eliminate the need to perform test counts. 
B)  to eliminate the need to observe the inventory. 
C)  minimal because the specialists are considered independent auditors. 
D)  minimal because the specialists are considered audit employees.

Question 13

Close to the end of the reporting period, the auditor needs to consider the extent of test
counts relative to total inventory and needs to review the recorded differences between test counts and inventory records over the year as well as the explanations of those differences.

Accepted Answer

A) True 
 B)False

Question 14

Substantiating asset disposals with supporting documentation is a test of details of transactions. Which assertion is most likely satisfied?

Accepted Answer

A)  existence 
B)  completeness 
C)  accuracy, valuation, and allocation 
D)  all of the above 
A)  existence 
B)  completeness 
C)  accuracy, valuation, and allocation 
D)  all of the above

Question 15

In auditing property, plant, and equipment (PPE), why might the auditor decide to assess control risk at the maximum and perform predominantly substantive testing?

Accepted Answer

A)  The number of additions to/disposals of PPE is usually not a material number. Therefore, it is not of concern to the auditor. 
B)  PPE in total is material. All material balances should be tested using a substantive approach. 
C)  The controls over PPE for most companies are usually poor. 
D)  Because transactions relating to property, plant, and equipment are few and usually individually material, assessment of control risk relating to these transactions is usually assumed to be the maximum. 
A)  The number of additions to/disposals of PPE is usually not a material number. Therefore, it is not of concern to the auditor. 
B)  PPE in total is material. All material balances should be tested using a substantive approach. 
C)  The controls over PPE for most companies are usually poor. 
D)  Because transactions relating to property, plant, and equipment are few and usually individually material, assessment of control risk relating to these transactions is usually assumed to be the maximum.

Question 16

The auditor's strategy in performing test counts during the inventory observation is to

Accepted Answer

A)  test all large-dollar items. 
B)  randomly select all test items. 
C)  concentrate tests on high dollar items with random selection of other items. 
D)  concentrate tests in areas where employees seem to be disregarding the inventory instructions. 
A)  test all large-dollar items. 
B)  randomly select all test items. 
C)  concentrate tests on high dollar items with random selection of other items. 
D)  concentrate tests in areas where employees seem to be disregarding the inventory instructions.

Question 17

Which of these factors contributes least to the risk of misstatement of inventories?

Accepted Answer

A)  the volume of transactions 
B)  location at a large single site 
C)  vulnerability to spoilage or damage 
D)  All of the above factors listed contribute equally to the risk of misstatement of inventories. 
A)  the volume of transactions 
B)  location at a large single site 
C)  vulnerability to spoilage or damage 
D)  All of the above factors listed contribute equally to the risk of misstatement of inventories.

Question 18

Identify the appropriate account balance audit objectives applicable to inventories for the assertion categories of:
-existence
-completeness
-rights and obligations
-accuracy, valuation and allocation
-presentation.

Accepted Answer

-existence - inventories included in the

Question 19

The statement about inherent risk assessments for property, plant, and equipment that is inaccurate is

Accepted Answer

A)  inherent risk is normally low for the classification and presentation assertions for PPE assets acquired under finance leases. 
B)  inherent risk is normally low for the existence assertion in a merchandising entity because PPE assets are not generally vulnerable to theft. 
C)  inherent risk is normally moderate to high for the existence assertion in a manufacturing entity because scrapped or retired PPE assets may not be written off the books. 
D)  inherent risk is normally low for the accuracy, valuation and allocation assertion when PPE assets are purchased for cash. 
A)  inherent risk is normally low for the classification and presentation assertions for PPE assets acquired under finance leases. 
B)  inherent risk is normally low for the existence assertion in a merchandising entity because PPE assets are not generally vulnerable to theft. 
C)  inherent risk is normally moderate to high for the existence assertion in a manufacturing entity because scrapped or retired PPE assets may not be written off the books. 
D)  inherent risk is normally low for the accuracy, valuation and allocation assertion when PPE assets are purchased for cash.

Question 20

For each of the following potential misstatements for inventories, identify a necessary control:
1. Failure to record goods received
2. Unreliable count procedures during a physical inventory count
3. Inappropriate basis for determining inventory costs
4. Unauthorized removal of goods from inventory
5. Insufficient extent of comparison between physical inventory count and inventory records
6. Inadequate investigation and correction of differences between inventory count and inventory records

Accepted Answer

1. Failure to record goods received
-Use

List the procedures that should be adopted in a physical inventory count.

Observation of inventory counts is a required audit procedure whenever

When an asset is shown on the financial statements other than at cost, which of the following is not required to be disclosed?

What should an auditor do to ensure that inventory is stated at the lower of cost and net realizable value?

Cyclical inventory counts differ from full inventory counts in which way?

An important procedure for the conduct of a physical inventory count is to maintain control over the count systems. Which of the following is not a common count system?

Confirmation of inventories in public warehouses cannot provide evidence concerning the

Inventories received before the period-end are recorded as current purchases and those received after the period end are included in the next period. What assertion is being described?

List the four separate functions of maintaining inventory records. Identify the documentation used in each function to prevent inventory records from being manipulated.

A capital asset sub-ledger details individual items of plant and equipment and records the cost of each asset and of any additions or alterations, and the accumulated depreciation charged against it.

The timing of a physical count of inventory is negotiated between the auditor and management. If the assessed level of control risk is high, an auditor would probably

When the client engages an inventory specialist to take the inventory, the impact on the audit in this area is

Close to the end of the reporting period, the auditor needs to consider the extent of test counts relative to total inventory and needs to review the recorded differences between test counts and inventory records over the year as well as the explanations of those differences.

Substantiating asset disposals with supporting documentation is a test of details of transactions. Which assertion is most likely satisfied?

In auditing property, plant, and equipment (PPE), why might the auditor decide to assess control risk at the maximum and perform predominantly substantive testing?

The auditor's strategy in performing test counts during the inventory observation is to

Which of these factors contributes least to the risk of misstatement of inventories?

Identify the appropriate account balance audit objectives applicable to inventories for the assertion categories of: -existence -completeness -rights and obligations -accuracy, valuation and allocation -presentation.

The statement about inherent risk assessments for property, plant, and equipment that is inaccurate is

Introduction and Review of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Audit Planning I

Audit Planning II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Understanding and Testing the Clients System of Internal Controls

Execution of the Audit Performing Substantive Procedures

Auditing Sales and Receivables

Auditing Purchases, Payables and Payroll

Auditing Cash and Investments

Completing and Reporting on the Audit

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Exam 11: Auditing Inventories and PPE

List the procedures that should be adopted in a physical inventory count.

Observation of inventory counts is a required audit procedure whenever

When an asset is shown on the financial statements other than at cost, which of the following is not required to be disclosed?

What should an auditor do to ensure that inventory is stated at the lower of cost and net realizable value?

Cyclical inventory counts differ from full inventory counts in which way?

An important procedure for the conduct of a physical inventory count is to maintain control over the count systems. Which of the following is not a common count system?

Confirmation of inventories in public warehouses cannot provide evidence concerning the

Inventories received before the period-end are recorded as current purchases and those received after the period end are included in the next period. What assertion is being described?

List the four separate functions of maintaining inventory records. Identify the documentation used in each function to prevent inventory records from being manipulated.

A capital asset sub-ledger details individual items of plant and equipment and records the cost of each asset and of any additions or alterations, and the accumulated depreciation charged against it.

The timing of a physical count of inventory is negotiated between the auditor and management. If the assessed level of control risk is high, an auditor would probably

When the client engages an inventory specialist to take the inventory, the impact on the audit in this area is

Close to the end of the reporting period, the auditor needs to consider the extent of test counts relative to total inventory and needs to review the recorded differences between test counts and inventory records over the year as well as the explanations of those differences.

Substantiating asset disposals with supporting documentation is a test of details of transactions. Which assertion is most likely satisfied?

In auditing property, plant, and equipment (PPE), why might the auditor decide to assess control risk at the maximum and perform predominantly substantive testing?

The auditor's strategy in performing test counts during the inventory observation is to

Which of these factors contributes least to the risk of misstatement of inventories?

Identify the appropriate account balance audit objectives applicable to inventories for the assertion categories of: -existence -completeness -rights and obligations -accuracy, valuation and allocation -presentation.

The statement about inherent risk assessments for property, plant, and equipment that is inaccurate is

Introduction and Review of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Audit Planning I

Audit Planning II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Understanding and Testing the Clients System of Internal Controls

Execution of the Audit Performing Substantive Procedures

Auditing Sales and Receivables

Auditing Purchases, Payables and Payroll

Auditing Cash and Investments

Completing and Reporting on the Audit

Filters