Question 1

In verifying debits to perpetual inventory records of a nonmanufacturing firm,the auditor would be most interested in examining the:

Accepted Answer

A) Purchases journal. 
B) Purchase requisitions. 
C) Purchase orders. 
D) Vendors' invoices. 
A) Purchases journal. 
B) Purchase requisitions. 
C) Purchase orders. 
D) Vendors' invoices.

Question 2

Which of the following is least likely to be performed efficiently using data analytics?

Accepted Answer

A) Identification of purchases recorded more than once. 
B) Identification of overvalued inventory items based on sales of those items. 
C) Identification of defective inventory items. 
D) Identification of slow-moving inventory items. 
A) Identification of purchases recorded more than once. 
B) Identification of overvalued inventory items based on sales of those items. 
C) Identification of defective inventory items. 
D) Identification of slow-moving inventory items.

Question 3

Which of the following best describes the reason for the auditors' review of the client's cost accounting system?

Accepted Answer

A) To obtain evidence regarding the quantities of good described as work in process. 
B) To obtain evidence about the valuation of work in process,finished goods,and cost of goods sold. 
C) To obtain evidence about the profit margin on specific jobs. 
D) To obtain evidence about compliance with Cost Accounting Standards. 
A) To obtain evidence regarding the quantities of good described as work in process. 
B) To obtain evidence about the valuation of work in process,finished goods,and cost of goods sold. 
C) To obtain evidence about the profit margin on specific jobs. 
D) To obtain evidence about compliance with Cost Accounting Standards.

Question 4

The auditors believe there is a significant risk of obsolescence of inventories for a particular client.Which of the following procedures would be least likely to detect obsolescence?

Accepted Answer

A) Performing analytical procedures. 
B) Using data analytics. 
C) Vouching purchases of inventory. 
D) Inquiries of production personnel. 
A) Performing analytical procedures. 
B) Using data analytics. 
C) Vouching purchases of inventory. 
D) Inquiries of production personnel.

Question 5

The use of a "blind" purchase order is designed to prevent errors by the:

Accepted Answer

A) Purchase department. 
B) Receiving department. 
C) Stores department. 
D) Accounting department. 
A) Purchase department. 
B) Receiving department. 
C) Stores department. 
D) Accounting department.

Question 6

Assume that you have completed your procedures on the audit of Warren Corporation and have found the following audit issues.Indicate the account balance financial statement assertion that is likely to be most impacted by each of the issues,using the following key:
 \[\begin{array} { | l | l | l | } 
\hline 1 & \text { It was discovered that a number of the items on hand } & \quad\quad\quad\quad\
&\text { and counted in the inventory were on consignment. } & \
\hline 2 & \text { In performing a price test of inventory items, you } & \
&\text { found a number of items priced below cost. } & \
\hline 3 & \begin{array} { l } 
\text { It appears that the selling price of certain of the } \
\text { company's products has declined significantly. }
\end{array} & \
\hline 4 & \begin{array} { l } 
\text { During the physical inventory it was noted that a } \
\text { number of inventory items were damaged. }
\end{array} & \
\hline & \text { Inventory items were stored in three different } & \
5 & \text { warehouses and the auditors fear that some items } & \
& \text { might be in an undisclosed fourth warehouse. } & \
\hline 6 & \begin{array} { l } 
\text { Some inventory items owned by the company were in } \
\text { transit during the physical inventory. }
\end{array} & \
\hline
\end{array}\]

Accepted Answer

1.Rights and Obligations
2.Val

Question 7

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise.Which of the following procedures provides the greatest assurance that this control is operating effectively?

Accepted Answer

A) Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the receiving reports. 
B) Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving reports. 
C) Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the checks. 
D) Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks. 
A) Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the receiving reports. 
B) Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving reports. 
C) Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the checks. 
D) Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.

Question 8

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers?

Accepted Answer

A) To document every test count. 
B) For subsequent comparison with the completed inventory listing. 
C) To document compliance with generally accepted accounting principles. 
D) For use in subsequent audits. 
A) To document every test count. 
B) For subsequent comparison with the completed inventory listing. 
C) To document compliance with generally accepted accounting principles. 
D) For use in subsequent audits.

Question 9

To measure how effectively a client employs its assets,an auditor calculates inventory turnover by dividing the average inventory into:

Accepted Answer

A) Net sales. 
B) Cost of goods sold. 
C) Operating income. 
D) Gross sales. 
A) Net sales. 
B) Cost of goods sold. 
C) Operating income. 
D) Gross sales.

Question 10

A receiving department compares inventory items received with copies of purchase orders.The purchase orders list the name of the vendor and do not list the quantities of the material ordered.Using the purchase orders,the receiving department is most likely to detect:

Accepted Answer

A) Deliveries for which no purchase order was issued. 
B) Unapproved sales orders. 
C) Partial deliveries. 
D) Deliveries of a greater quantity of items than those ordered. 
A) Deliveries for which no purchase order was issued. 
B) Unapproved sales orders. 
C) Partial deliveries. 
D) Deliveries of a greater quantity of items than those ordered.

Question 11

Which of the following is least likely to be an accurate statement concerning characteristics of an audit?

Accepted Answer

A) An analysis of inventory turnover can indicate possible obsolescence of inventory. 
B) Characteristics of the double entry bookkeeping system make it possible to test for overstated sales when tests of accounts receivable are being performed. 
C) The direction of tests for understatement errors is generally directed from the recorded entry to source documents. 
D) Use of a perpetual rather than a periodic inventory system is likely to affect the nature of cutoff errors made at year-end. 
A) An analysis of inventory turnover can indicate possible obsolescence of inventory. 
B) Characteristics of the double entry bookkeeping system make it possible to test for overstated sales when tests of accounts receivable are being performed. 
C) The direction of tests for understatement errors is generally directed from the recorded entry to source documents. 
D) Use of a perpetual rather than a periodic inventory system is likely to affect the nature of cutoff errors made at year-end.

Question 12

In auditing a manufacturing entity,which of the following procedures would an auditor least likely perform to determine whether slow-moving,defective,and obsolete items included in inventory are properly identified?

Accepted Answer

A) Examine inventory items for dust or rust during observation. 
B) Trace tag counts to final inventory listing. 
C) Compare inventory balances to anticipated sales volume. 
D) Review inventory experience and trends. 
A) Examine inventory items for dust or rust during observation. 
B) Trace tag counts to final inventory listing. 
C) Compare inventory balances to anticipated sales volume. 
D) Review inventory experience and trends.

Question 13

Which of the following would an auditor most likely question included in calculation of the overhead rate for a company that manufactures a product?

Accepted Answer

A) Factory supervisor salary. 
B) Indirect materials. 
C) Machine hours. 
D) Selling expense. 
A) Factory supervisor salary. 
B) Indirect materials. 
C) Machine hours. 
D) Selling expense.

Question 14

Which of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse?

Accepted Answer

A) Confirmation. 
B) Obtaining reports on internal control at the warehouse. 
C) Observation. 
D) Communicate with the regulatory agency about the legitimacy of the public warehouse. 
A) Confirmation. 
B) Obtaining reports on internal control at the warehouse. 
C) Observation. 
D) Communicate with the regulatory agency about the legitimacy of the public warehouse.

Question 15

To best ascertain that a company has properly included merchandise that it owns in its ending inventory,the auditors should review and test the:

Accepted Answer

A) Terms of the open purchase orders. 
B) Purchase cutoff procedures. 
C) Contractual commitments made by the purchasing department. 
D) Purchase invoices received on or around year-end. 
A) Terms of the open purchase orders. 
B) Purchase cutoff procedures. 
C) Contractual commitments made by the purchasing department. 
D) Purchase invoices received on or around year-end.

Question 16

A "bill and hold" scheme is most likely to include:

Accepted Answer

A) Shipment of items to a customer beyond what the customer has ordered. 
B) Recording as sales items that the company retains as of year-end. 
C) Billing of items that are held by customers for future revenue production purposes. 
D) Selling items at substantial discounts near year-end. 
A) Shipment of items to a customer beyond what the customer has ordered. 
B) Recording as sales items that the company retains as of year-end. 
C) Billing of items that are held by customers for future revenue production purposes. 
D) Selling items at substantial discounts near year-end.

Question 17

The receiving department should accept only goods for which there is an approved purchase order on hand.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not a reason for the special significance attached by the auditors to the verification of inventories?

Accepted Answer

A) The determination of inventory valuation directly affects net income. 
B) The existence of inventories is inherently difficult to substantiate. 
C) Special valuation problems often exist for inventories. 
D) Inventories are often the largest current asset of an enterprise. 
A) The determination of inventory valuation directly affects net income. 
B) The existence of inventories is inherently difficult to substantiate. 
C) Special valuation problems often exist for inventories. 
D) Inventories are often the largest current asset of an enterprise.

Question 19

The examination of warehouse receipts is sufficient verification of a material amount of goods stored in public warehouses.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper?

Accepted Answer

A) Testing the entity's computation of standard overhead rates. 
B) Obtaining confirmation of inventories pledged under loan agreements. 
C) Reviewing a cutoff procedure for inventories. 
D) Tracing test counts to the entity's inventory listing. 
A) Testing the entity's computation of standard overhead rates. 
B) Obtaining confirmation of inventories pledged under loan agreements. 
C) Reviewing a cutoff procedure for inventories. 
D) Tracing test counts to the entity's inventory listing.

In verifying debits to perpetual inventory records of a nonmanufacturing firm,the auditor would be most interested in examining the:

Which of the following is least likely to be performed efficiently using data analytics?

Which of the following best describes the reason for the auditors' review of the client's cost accounting system?

The auditors believe there is a significant risk of obsolescence of inventories for a particular client.Which of the following procedures would be least likely to detect obsolescence?

The use of a "blind" purchase order is designed to prevent errors by the:

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise.Which of the following procedures provides the greatest assurance that this control is operating effectively?

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers?

To measure how effectively a client employs its assets,an auditor calculates inventory turnover by dividing the average inventory into:

A receiving department compares inventory items received with copies of purchase orders.The purchase orders list the name of the vendor and do not list the quantities of the material ordered.Using the purchase orders,the receiving department is most likely to detect:

Which of the following is least likely to be an accurate statement concerning characteristics of an audit?

In auditing a manufacturing entity,which of the following procedures would an auditor least likely perform to determine whether slow-moving,defective,and obsolete items included in inventory are properly identified?

Which of the following would an auditor most likely question included in calculation of the overhead rate for a company that manufactures a product?

Which of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse?

To best ascertain that a company has properly included merchandise that it owns in its ending inventory,the auditors should review and test the:

A "bill and hold" scheme is most likely to include:

The receiving department should accept only goods for which there is an approved purchase order on hand.

Which of the following is not a reason for the special significance attached by the auditors to the verification of inventories?

The examination of warehouse receipts is sufficient verification of a material amount of goods stored in public warehouses.

Which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper?

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Audit Planning, understanding the Client, assessing Risks, and Responding

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, notes Receivable, and Revenue

Property,plant,and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Reports

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, operational, and Compliance Auditing

Filters

Exam 12: Inventories and Cost of Goods Sold

In verifying debits to perpetual inventory records of a nonmanufacturing firm,the auditor would be most interested in examining the:

Which of the following is least likely to be performed efficiently using data analytics?

Which of the following best describes the reason for the auditors' review of the client's cost accounting system?

The auditors believe there is a significant risk of obsolescence of inventories for a particular client.Which of the following procedures would be least likely to detect obsolescence?

The use of a "blind" purchase order is designed to prevent errors by the:

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise.Which of the following procedures provides the greatest assurance that this control is operating effectively?

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers?

To measure how effectively a client employs its assets,an auditor calculates inventory turnover by dividing the average inventory into:

A receiving department compares inventory items received with copies of purchase orders.The purchase orders list the name of the vendor and do not list the quantities of the material ordered.Using the purchase orders,the receiving department is most likely to detect:

Which of the following is least likely to be an accurate statement concerning characteristics of an audit?

In auditing a manufacturing entity,which of the following procedures would an auditor least likely perform to determine whether slow-moving,defective,and obsolete items included in inventory are properly identified?

Which of the following would an auditor most likely question included in calculation of the overhead rate for a company that manufactures a product?

Which of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse?

To best ascertain that a company has properly included merchandise that it owns in its ending inventory,the auditors should review and test the:

A "bill and hold" scheme is most likely to include:

The receiving department should accept only goods for which there is an approved purchase order on hand.

Which of the following is not a reason for the special significance attached by the auditors to the verification of inventories?

The examination of warehouse receipts is sufficient verification of a material amount of goods stored in public warehouses.

Which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper?

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Audit Planning, understanding the Client, assessing Risks, and Responding

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, notes Receivable, and Revenue

Property,plant,and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Reports

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, operational, and Compliance Auditing

Filters