21/08/2024 Audit procedures of Inventory

An auditor analysing inventory turnover rates would NOT obtain evidence about which of the following management assertions?

• Existence

• 1. Rights and obligations

• 1. Completeness

• 1. Accuracy, valuation and allocation

 If inventory is material to the financial statements, the auditor must obtain sufficient, appropriate audit evidence regarding the existence and condition of inventory by attending the physical inventory counting, unless impracticable.

In which of the following situations would it be considered impracticable for an auditor to attend physical inventory counting?

• When there is insufficient audit time available

• When inventory is held at a remote location far distant from the auditor’s premises

• 1. When the financial cost of attending the count would exceed the benefit

• 1. None of these

An audit program for inventory includes the following procedure:

“Test count a sample of physical inventory and agree to management’s count records.”

Which of the following assertions is tested by this procedure?

• 1. Completeness

• Existence

• Cut-off

• Accuracy, valuation and allocation

Given the nature of XYZ Corporation's industry and the potential impact of technological changes on inventory. Which audit procedure would be MOST effective in addressing the risk of obsolete inventory?

•     Assess post year-end sales values

•    Observing the company's physical count of inventory

• Testing the design and implementation of internal controls over inventory valuation

• Performing substantive analytical procedures on inventory turnover ratios

As part of the audit planning, the auditor assesses the risk of management override of controls.

Which of the following procedures is LEAST likely to detect the risk of management override?

• Analysing journal entries for unusual or unexpected transactions

• Assess the operating effectiveness of authorisation controls

• Conducting surprise inventory counts at various locations

• Assess the design of authorisation controls