Exam 12: Inventories and Cost of Goods Sold

Which of the following is true about the auditors' observation of the client's physical inventory?

The proper cutoff of inventories is best achieved when receiving reports and purchase invoices surrounding the year-end are examined.

To assure that all purchases are authorized before payment is made,accounting department personnel should match the vendor's invoice to:

Auditors should not review the client's planning of the physical inventory.

The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule.This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are:

Your audit client,Banner,is a retail sporting goods store.You are currently working on the inventory portion of the audit.In obtaining audit evidence in support of financial statement assertions,the auditor develops specific audit objectives in response to those assertions.Audit procedures are then selected to accomplish audit objectives. For each specific inventory audit objective listed,select the most closely related account balance financial statement assertion and the most appropriate audit procedure.Financial statement assertions and audit procedures may be selected once,more than once,or not at all. Specific audit objectives 1 The entity has legal title to inventories. 2 Recorded inventory quantities include all products on hand. 3 Inventories are reduced, when appropriate, to replacement costs or net realizable value. 4 Cost of inventories is properly calculated. 5 The major categories of inventories and their basis of valuation are adequately rep orted in the financial statements.

The client's physical count of inventories is lower than the inventory quantities in the perpetual records.This could be the result of a failure to record:

In auditing a client's inventory,the auditors must be concerned with the detection of goods that are both damaged and obsolete. a.Why are the auditors concerned with detecting damaged and obsolete goods? b.How do the auditors test for damaged goods in the client's inventory? c.How do the auditors test for obsolete goods in the client's inventory?

Which of the following is an auditor least likely to consider a departure from U.S.generally accepted accounting principles?

Which one of the following procedures would not be appropriate for the auditors in discharging their responsibilities concerning the client's physical inventories?

The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to:

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?

Which of the following best describes the auditors' response to a client's use of statistical sampling techniques to estimate the inventory?

The lower-of-cost-or-market test by the auditors is generally designed to assure that inventories are valued at or above their net realizable values.

An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets.Which assertion does this procedure relate to most directly?

For good internal control over purchase transactions,purchases should be documented by a purchase requisition by the department needing the goods.

After accounting for a sequence of inventory tags,an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items:

Effective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has:

The use of a tagging system for inventory taking is designed to prevent double counting of goods.

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