Question 1

The audit test of control "Review and test procedures for issuing materials to manufacturing departments" provides assurance mainly for the occurrence assertion for inventory management.

Accepted Answer

A) True 
 B)False

Question 2

A comparison of the current year's inventory turnover ratio with previous years' may indicate the presence of obsolete inventory.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

Accepted Answer

A)   Compare the physical quantities of slow-moving items with corresponding quantities of the prior year.
B)   Observe the condition of merchandise and raw materials during the entity's physical inventory count.
C)   Review the management's inventory representation letter for accuracy.
D)   Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.E) All of the above
F) B) and D)

Question 4

Key segregations of duties in the inventory management process include all of the following except separating:

Accepted Answer

A)   Cost accounting from review of variance reports.
B)   Inventory management from cost accounting.
C)   Cost accounting from the general ledger function.
D)   Supervision of physical inventory from inventory management.E) B) and C)
F) None of the above

Question 5

Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?

Accepted Answer

A)   Inventory cutoff errors.
B)   Misapplication of LIFO.
C)   Unreported scrap or spoilage.
D)   Theft.E) All of the above
F) C) and D)

Question 6

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably

Accepted Answer

A)   Want the entity to schedule the physical inventory count at the end of the year.
B)   Insist that the entity perform physical counts of inventory items several times during the year.
C)   Increase the extent of tests for unrecorded liabilities at the end of the year.
D)   Have to disclaim an opinion on the income statement for that year.E) All of the above
F) C) and D)

Question 7

Auditors are most likely to ensure that no production activity is scheduled prior to

Accepted Answer

A)   Determining standard costs.
B)   Observing physical inventory.
C)   Completing the book to physical adjustment.
D)   Determining the amount of consigned inventory.E) A) and D)
F) A) and C)

Question 8

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Accepted Answer

A)   Independent storeroom count of goods received.
B)   Periodic independent reconciliation of control and subsidiary records.
C)   Periodic independent comparison of records with goods on hands.
D)   Independent matching of purchase orders, receiving reports, and vendors' invoices.E) None of the above
F) A) and D)

Question 9

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

Accepted Answer

A)   Vouching the raw materials' costs to vendors' invoices.
B)   Obtaining confirmation of inventories pledged under loan agreements.
C)   Reviewing shipping and receiving cutoff activities for inventories.
D)   Tracing test counts to the entity's inventory listing.E) B) and D)
F) A) and C)

Question 10

For each of the following, state whether it is a test of details of account balances or a test of details of disclosures. Then note for which assertion the test provides evidence.
1. Inspect loan agreements under which an entity's inventories are pledged.
2. Review inventory compilation for proper classification among raw materials, work in process, and finished goods.
3. Observe the count of physical inventory.
4. Trace test counts and tag control information to the inventory compilation.
5. Inquire of management about issues related to LIFO liquidations.
6. Review book-to-physical adjustments for possible misstatements.

Accepted Answer

1. Disclosures - Occurrence, Rights and ...

Question 11

Inventory should be valued using the lower-of-cost-or-market rule.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following best describes the occurrence assertion for inventory?

Accepted Answer

A)   Purchase requisitions initiated by authorized personnel.
B)   Recorded inventory actually exists.
C)   Inventory properly accumulated from journals and ledgers.
D)   All inventory is recorded.E) A) and C)
F) B) and D)

Question 13

An inventory turnover analysis is useful to the auditor because it may detect

Accepted Answer

A)   Inadequacies in inventory pricing.
B)   Methods of avoiding cyclical holding costs.
C)   The optimum automatic reorder points.
D)   The existence of obsolete merchandise.E) B) and C)
F) A) and C)

Question 14

In the audit of inventory, the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

Accepted Answer

A) True 
 B)False

Exam 13: Auditing the Inventory Management Process

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably

Correct Answer
verified

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Correct Answer
verified

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

Correct Answer
verified

Which of the following best describes the occurrence assertion for inventory?

Correct Answer
verified

Correct Answer
verified
1. Disclosures - Occurrence, Rights and ...
View Answer

Auditors are most likely to ensure that no production activity is scheduled prior to

Correct Answer
verified

Inventory should be valued using the lower-of-cost-or-market rule.

Correct Answer
verified

A comparison of the current year's inventory turnover ratio with previous years' may indicate the presence of obsolete inventory.

Correct Answer
verified

In the audit of inventory, the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

Correct Answer
verified

The audit test of control "Review and test procedures for issuing materials to manufacturing departments" provides assurance mainly for the occurrence assertion for inventory management.

Correct Answer
verified

Key segregations of duties in the inventory management process include all of the following except separating:

Correct Answer
verified

An inventory turnover analysis is useful to the auditor because it may detect

Correct Answer
verified

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

Correct Answer
verified

Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?

Correct Answer
verified

Exam 13: Auditing the Inventory Management Process

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably

Correct AnswerverifiedShow Answer

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Correct AnswerverifiedShow Answer

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

Correct AnswerverifiedShow Answer

Which of the following best describes the occurrence assertion for inventory?

Correct AnswerverifiedShow Answer

Correct Answerverified1. Disclosures - Occurrence, Rights and ...View AnswerShow Answer

Auditors are most likely to ensure that no production activity is scheduled prior to

Correct AnswerverifiedShow Answer

Inventory should be valued using the lower-of-cost-or-market rule.

Correct AnswerverifiedShow Answer

A comparison of the current year's inventory turnover ratio with previous years' may indicate the presence of obsolete inventory.

Correct AnswerverifiedShow Answer

In the audit of inventory, the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

Correct AnswerverifiedShow Answer

The audit test of control "Review and test procedures for issuing materials to manufacturing departments" provides assurance mainly for the occurrence assertion for inventory management.

Correct AnswerverifiedShow Answer

Key segregations of duties in the inventory management process include all of the following except separating:

Correct AnswerverifiedShow Answer

An inventory turnover analysis is useful to the auditor because it may detect

Correct AnswerverifiedShow Answer

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

Correct AnswerverifiedShow Answer

Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
1. Disclosures - Occurrence, Rights and ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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