Question 1

Auditing standards recommend that auditors observe physical inventory counts by the client.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) related costs. 
B) storage of the goods. 
C) internal control over those goods. 
D) prevention of waste,obsolescence,and theft. 
A) related costs. 
B) storage of the goods. 
C) internal control over those goods. 
D) prevention of waste,obsolescence,and theft.

Question 3

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.

Accepted Answer

A) cutoff 
B) accuracy 
C) nature 
D) extent 
A) cutoff 
B) accuracy 
C) nature 
D) extent

Question 4

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

Accepted Answer

A) one accumulates costs by materials issued and the other by labor incurred. 
B) one accumulates costs by individual jobs and the other by particular processes. 
C) one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process. 
D) one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste,scrap,and obsolescence. 
A) one accumulates costs by materials issued and the other by labor incurred. 
B) one accumulates costs by individual jobs and the other by particular processes. 
C) one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process. 
D) one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste,scrap,and obsolescence.

Question 5

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

Accepted Answer

A) withdraw from the engagement. 
B) issue a qualified audit report. 
C) conduct expanded observation tests of physical inventory. 
D) hire a specialist to assist the auditor. 
A) withdraw from the engagement. 
B) issue a qualified audit report. 
C) conduct expanded observation tests of physical inventory. 
D) hire a specialist to assist the auditor.

Question 6

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

Accepted Answer

A) accounting systems. 
B) storeroom documents. 
C) cost accounting records. 
D) finished goods inventory records. 
A) accounting systems. 
B) storeroom documents. 
C) cost accounting records. 
D) finished goods inventory records.

Question 7

Physical examination is an essential type of evidence used to verify the existence and count of inventory.

Accepted Answer

A) True 
 B)False

Question 8

If the perpetual inventory master files show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded

Accepted Answer

A) sales. 
B) sales discounts. 
C) purchases. 
D) purchase discounts. 
A) sales. 
B) sales discounts. 
C) purchases. 
D) purchase discounts.

Question 9

State the six functions that make up the inventory and warehousing cycle and,for each function,identify the related documents that would be used by a manufacturing company.

Accepted Answer

The six functions are:
•Process purchase

Question 10

In the flow of inventory and costs,when work-in-progress is credited,________ is (are)debited.

Accepted Answer

A) raw materials 
B) cost of goods sold 
C) finished goods 
D) direct labor 
A) raw materials 
B) cost of goods sold 
C) finished goods 
D) direct labor

Question 11

A common inventory observation procedure is to be alert for items that are damaged,rust- or dust-covered,or located in inappropriate places.The balance-related audit objective being achieved by this procedure is

Accepted Answer

A) classification. 
B) cutoff. 
C) realizable value. 
D) rights. 
A) classification. 
B) cutoff. 
C) realizable value. 
D) rights.

Question 12

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 13

Which of the following is a continuously updated computerized record of inventory items purchased,used,sold,and on hand for merchandise,raw materials,and finished goods?

Accepted Answer

A) job cost system 
B) standard cost records 
C) cost accounting records 
D) perpetual inventory master file 
A) job cost system 
B) standard cost records 
C) cost accounting records 
D) perpetual inventory master file

Question 14

The audit of the inventory and warehousing cycle will be affected by the results from other business processes.Identify the "other" business cycles and how they impact the audit of inventory.

Accepted Answer

Acquisition and payment,and pa

Question 15

The test of details of balance procedure which requires the auditor to perform tests of lower of cost or market,selling price,and obsolescence is an attempt to satisfy the objective of

Accepted Answer

A) existence. 
B) completeness. 
C) accuracy. 
D) realizable value. 
A) existence. 
B) completeness. 
C) accuracy. 
D) realizable value.

Question 16

Boxes or other containers holding inventory should also be opened during test counts to determine the ________ of the inventory.

Accepted Answer

A) classification 
B) detail tie-in 
C) existence 
D) realizable value 
A) classification 
B) detail tie-in 
C) existence 
D) realizable value

Question 17

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

Accepted Answer

A) acquisition and payments cycle. 
B) payroll and personnel cycle. 
C) inventory and warehousing cycle. 
D) sales and collection cycle. 
A) acquisition and payments cycle. 
B) payroll and personnel cycle. 
C) inventory and warehousing cycle. 
D) sales and collection cycle.

Question 18

What are two factors affecting the complexity of the audit of inventory?

Accepted Answer

•Inventory is often the largest account

Question 19

Auditing standards require that auditors satisfy themselves about the effectiveness of the client's methods of counting inventory and the reliance they can place on the client's representations about the quantities and physical condition of the inventories.To meet this requirement,auditors must perform four activities.List them below.

Accepted Answer

•be present at the time the client count

Question 20

In addition to performing analytical procedures that examine the relationship of inventory account balances with related financial statement accounts,auditor's will often use nonfinancial measures in determining the reasonableness of inventory balances.List below at least two nonfinancial measures that may be useful to auditors.

Accepted Answer

size and weight of i

Exam 21: Audit of the Inventory and Warehousing Cycle

Auditing standards recommend that auditors observe physical inventory counts by the client.

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

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.

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

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

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

Physical examination is an essential type of evidence used to verify the existence and count of inventory.

If the perpetual inventory master files show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded

State the six functions that make up the inventory and warehousing cycle and,for each function,identify the related documents that would be used by a manufacturing company.

In the flow of inventory and costs,when work-in-progress is credited,________ is (are)debited.

A common inventory observation procedure is to be alert for items that are damaged,rust- or dust-covered,or located in inappropriate places.The balance-related audit objective being achieved by this procedure is

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

Which of the following is a continuously updated computerized record of inventory items purchased,used,sold,and on hand for merchandise,raw materials,and finished goods?

The audit of the inventory and warehousing cycle will be affected by the results from other business processes.Identify the "other" business cycles and how they impact the audit of inventory.

The test of details of balance procedure which requires the auditor to perform tests of lower of cost or market,selling price,and obsolescence is an attempt to satisfy the objective of

Boxes or other containers holding inventory should also be opened during test counts to determine the ________ of the inventory.

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

What are two factors affecting the complexity of the audit of inventory?

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls,

Completing the Tests in the Acquisition and Payment Cycle:

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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