The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the

acquisition and payments cycle.

Almost all companies need physical controls over their assets to prevent loss. Which of the following is not an example of such a control?

Perpetual inventory master files

Segregated, limited-access storage areas

Custody of assets assigned to specific responsible individuals.

Approved prenumbered documents for authorizing movement of inventory

_________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.

Just-in-time production systems

There must be a periodic physical count by the client of the inventory items on hand:

regardless of the client’s inventory valuation method

only if the client uses the LIFO method.

only if the client uses a lower-of-cost-or-market method

only if the client uses either the LIFO or FIFO method

With regard to the physical count of inventory, necessary control procedures include:

counting the inventory only on the year-end date.

proper instructions for the physical count.

independent third-party verification of the count

third-party reconciliations of the physical counts with perpetual inventory master files.

If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count, the auditor should ordinarily:

conduct expanded observation tests of physical inventory.

issue a qualified audit report.

hire a specialist to assist the auditor.

From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories

Observation of physical inventory counts.

Written inventory representations from management.

Confirmation of inventories in a public warehouse

Auditor’s recomputation of inventory extensions.

Which of the following is not a function within the inventory and warehousing cycle?

Process invoices for shipped goods.

If an auditor were concerned with obtaining evidence about the appropriateness of the value of inventory, which of the following tests would be most appropriate?

Confirmation of inventory held by outside parties.

Physical examination of the inventory.

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client’s ending inventory?

Observe merchandise and raw materials during the client's physical inventory count.

Compare the physical quantities of slow-moving items with corresponding quantities of the prior year.

Review the management’s inventory representation letter for accuracy

Test overall fairness of inventory values by comparing the company’s turnover ratio with the industry average.

Which of the following controls would be appropriate regarding the release of materials from a stockroom?

Production employees submit approved requisition forms to the stockroom for materials needed.

Production employees request materials be delivered to their work areas as they need them

Stockroom employees deliver materials to work areas throughout the day to maintain acceptable levels of safety stock – no written records are maintained.

Production employer in need of materials should personally pick up needed materials from the stockroom

Who should maintain the perpetual inventory master files?

Accounting department personnel

The inventory and warehousing cycle can be thought of as having two separate but closely related systems, one involving the actual physical flow of goods, and the other the:

internal control over those goods

prevention of waste, obsolescence, and theft.

In any company involved in manufacturing, an adequate cost accounting internal control system is necessary to indicate the relative profitability of the various products for management planning and control and to:

value inventories for financial statement purposes.

determine variances from standards

determine variances from budgets.

value inventories for audit verification.

Master files, worksheets, and reports that accumulate material, labor, and overhead as the costs are incurred are:

finished goods inventory records

The main difference between job order and process costing systems is that:

one accumulates costs by individual jobs and the other by particular processes.

one accumulates costs by materials issued and the other by labor incurred.

one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process.

one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence.

A well-designed computerized system of perpetual inventory master files includes information about the:

units and unit costs of inventory purchased, sold, and on hand.

units of inventory purchased, sold, and on hand

unit costs of inventory purchased, sold, and on hand

units of raw materials, work-in-process, and finished goods

Which of the following is a significant audit concern related to the transfer of inventory from one location to another?

Transfers were properly transported

Transfers were properly planned.

Transfers represent efficient movement of assets.

Which of the following is not an aspect of concern when auditing the cost accounting system?

Safeguarding the raw materials from point of receipt to the storeroom

Physical controls over inventory.

Documents and records for transferring inventory.

The auditor’s tests of the adequacy of the physical controls over raw materials, work-in-process, and finished goods must be restricted to:

documentation and confirmation.

It is frequently possible to test the physical inventory prior to the balance sheet date when:

there are accurate perpetual inventory master files.

the internal control system is no better at year-end than at an earlier point in time

the client counts inventory at interim dates.

A major difficulty in the verification of inventory cost records is determining reasonableness of:

number of direct labor hours applied.

When auditing the inventory and warehousing cycle, the use of analytical procedures is

as important as their use in any other cycle

less important than for any other cycle.

more important than for any other cycle

Which one of the following analytical procedures would be most helpful in alerting the auditor to the possibility of obsolete inventory?

Compare inventory turnover ratio with previous years’

Compare gross margin percentage with previous years’

Compare unit costs of inventory with previous years’

Compare current year manufacturing costs with previous years’.

McKesson & Robbins Company is a well-known audit case involving auditor responsibility. What occurred at the McKesson & Robbins Company to change the way in which auditors audit inventory

The company recorded nonexistent inventory

The auditor did not perform any audit tests of the inventory

The auditor and company colluded to overstate inventory balances.

The company counted inventory three months prior to year-end

When a physical count of inventory is performed at an interim date, the auditor observes it at that time and tests the perpetual records for transactions:

from the date of the count to year-end.

which are a representative sample of the period under audit.

from the date of the count to the end of the audit field work.

When there are no perpetual inventory files and inventory is material:

a physical inventory should be taken by the client near year-end.the auditor will have to perform the inventory count and determine valuation.

an audit cannot be performed, so the auditor must issue a disclaime

the auditor need not observe inventory counts but must do test counts.

The most important part of the observation of inventory is to determine whether:

the physical count is being taken in accordance with the client’s instructions

the inventory-takers are qualified.

obsolete inventory has been identified

A useful starting point for becoming familiar with the client’s inventory is for the auditor to:

read the AICPA’s Industry Audit Guide

review accounting theory covering special problems, such as gas and oil accounting, or lease-purchase agreements.

read the client’s Accounting Manual.

A common inventory observation procedure is to select a random sample of tag numbers and identify the tag with that number attached to the actual inventory item. The audit objective being achieved by this procedure is:

inventory as recorded on tags actually exists (existence).

existing inventory is counted and tagged (completeness).

inventory is counted accurately (accuracy).

inventory is classified correctly (classification).

If a client intends to count inventory at an interim date, the auditor should expect there to be all of the following except:

third-party inventory counting specialists

controls over the preparation and maintenance of perpetual inventory records.

competent personnel assigned to count the inventory.

an adequately designed plan to count the inventory

The auditor’s main concerns in verifying transfers of inventory do not include whether:

transfers represent appropriate uses of company resources.

all actual transfers are recorded.

the details of the transfer are accurately recorded.

Inventories

Authored by Trisha Hipolito

Other

3rd Grade

Used 20+ times

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Receipt of ordered materials by the receiving department will generate the completion of a form called the:

bill of lading.

receiving report.

materials requisition.

inventory acquisition summary.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The audit of ______ is often the most difficult and complex part of an audit.

property, plant and equipment

cash

inventory

prepaid insurance

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Inventory is a complex area to audit for all but which of the following reasons?

Inventory is often in different locations.

There are several acceptable valuation methods and some entities use different methods for different types of inventory.

Inventory is often the largest account in working capital.

Inventory valuation includes few estimates.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

When labor is a significant part of inventory, verifying the proper accounting of these costs should be tested in the:

inventory and warehousing cycle.

payroll and personnel cycle.

acquisitions and payments cycle.cash cycle

cash cycle

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

For retail and wholesale businesses, the most important inventory is

merchandise available for sale.

work-in-process.

raw materials.

inventory held on consignmen

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The audit procedure “observe the client taking a physical inventory count and test the count” is sufficient to determine all of the following except:

whether recorded inventory actually exists

whether recorded inventory was properly valued by the client.

whether recorded inventory was properly counted by the client.

whether client inventory instruction had properly been followed.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

In most manufacturing companies, the inventory and warehousing cycle begins with the:

receipt of a customer’s order.

completion of production of a customer’s order

initiation of production of a customer’s order.

acquisition of raw materials for production of an order

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Inventories

Receipt of ordered materials by the receiving department will generate the completion of a form called the:

The audit of ______ is often the most difficult and complex part of an audit.

Inventory is a complex area to audit for all but which of the following reasons?

When labor is a significant part of inventory, verifying the proper accounting of these costs should be tested in the:

For retail and wholesale businesses, the most important inventory is

The audit procedure “observe the client taking a physical inventory count and test the count” is sufficient to determine all of the following except:

In most manufacturing companies, the inventory and warehousing cycle begins with the:

The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the

Which of the following would be an appropriate initiation of a purchase requisition? One initiated based on a periodic count of raw materials. One initiateby stockroom personnel as raw materials are needed.

Almost all companies need physical controls over their assets to prevent loss. Which of the following is not an example of such a control?

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Which of the following would be an appropriate initiation of a purchase requisition?
One initiated based on a periodic count of raw materials.
One initiateby stockroom personnel as raw materials are needed.