Question 1

What are the auditor's primary concerns in verifying the transfer of inventory from one location to another?

Accepted Answer

1. Recorded transfers exist.
2

Question 2

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of

Accepted Answer

A)  audit efficiency. 
B)  accuracy of the perpetual inventory master files. 
C)  client convenience. 
D)  audit staff availability. 
A)  audit efficiency. 
B)  accuracy of the perpetual inventory master files. 
C)  client convenience. 
D)  audit staff availability.

Question 3

The most important part of the observation of inventory is to determine whether

Accepted Answer

A)  all counts are accurate. 
B)  the inventory-takers are qualified. 
C)  obsolete inventory has been identified. 
D)  the physical count is being taken in accordance with the client's instructions. 
A)  all counts are accurate. 
B)  the inventory-takers are qualified. 
C)  obsolete inventory has been identified. 
D)  the physical count is being taken in accordance with the client's instructions.

Question 4

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 purchas

Question 5

________ is normally characterized as a difficult and complex account to audit.

Accepted Answer

A)  Property, plant and equipment 
B)  Cash 
C)  Inventory 
D)  Prepaid insurance 
A)  Property, plant and equipment 
B)  Cash 
C)  Inventory 
D)  Prepaid insurance

Question 6

Inherent risk is typically assessed at a low level for inventory due to the nature of the asset.

Accepted Answer

A) True 
 B)False

Question 7

In most manufacturing companies, the inventory and warehousing cycle begins with the

Accepted Answer

A)  receipt of a customer's order. 
B)  completion of production of a customer's order. 
C)  initiation of production of a customer's order. 
D)  acquisition of raw materials for production. 
A)  receipt of a customer's order. 
B)  completion of production of a customer's order. 
C)  initiation of production of a customer's order. 
D)  acquisition of raw materials for production.

Question 8

Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.

Accepted Answer

An auditor's physical examination of inv

Question 9

Discuss the four aspects of the audit of cost accounting with which the auditor is most concerned.

Accepted Answer

The auditor is most concerned with:
• Ph

Question 10

The audit procedure "Foot the inventory listing schedules for raw materials, work-in-process, and finished goods" provides assurance mainly for the accuracy objective for inventory pricing and compilation.

Accepted Answer

A) True 
 B)False

Question 11

It is acceptable practice for CPA firms to use drones to evaluate inventories and other assets such as mineral deposits during audits.

Accepted Answer

A) True 
 B)False

Question 12

Cost accounting controls are those related to the physical inventory and the consequent costs from the point at which

Accepted Answer

A)  materials are ordered for purchase until the finished product is sold. 
B)  the customer's order is received until the finished product is shipped. 
C)  raw materials are requisitioned until the finished product is sent to storage. 
D)  raw materials are requisitioned until the finished product is completely manufactured. 
A)  materials are ordered for purchase until the finished product is sold. 
B)  the customer's order is received until the finished product is shipped. 
C)  raw materials are requisitioned until the finished product is sent to storage. 
D)  raw materials are requisitioned until the finished product is completely manufactured.

Question 13

The design of tests of details of balances for inventory is affected by audit results from multiple cycles. Identify the cycles, other than the inventory and warehousing cycle that affect the audit of inventory.

Accepted Answer

Tests of details of balances for invento

Question 14

A major source of cutoff information for sales and purchases of inventory is

Accepted Answer

A)  confirmations from outside parties. 
B)  the test of details of balances. 
C)  physical observation. 
D)  the performance of analytical procedures. 
A)  confirmations from outside parties. 
B)  the test of details of balances. 
C)  physical observation. 
D)  the performance of analytical procedures.

Question 15

Which of the following is an accurate statement regarding perpetual inventory master files?

Accepted Answer

A)  When perpetual inventory master files are accurate, auditors can test the physical inventory after the balance sheet date. 
B)  It is a difficult procedure for the auditor to test the accuracy of the perpetual inventory master files. 
C)  Auditors test the perpetual records for reductions in finished goods for sale as part of the sales and collection cycle. 
D)  All of the above are accurate statements. 
A)  When perpetual inventory master files are accurate, auditors can test the physical inventory after the balance sheet date. 
B)  It is a difficult procedure for the auditor to test the accuracy of the perpetual inventory master files. 
C)  Auditors test the perpetual records for reductions in finished goods for sale as part of the sales and collection cycle. 
D)  All of the above are accurate statements.

Question 16

It is not allowed under accounting standards to use different inventory valuation methods for different parts of the inventory.

Accepted Answer

A) True 
 B)False

Question 17

The auditor is concerned with four aspects of cost accounting, including

Accepted Answer

A)  documents and records for transferring inventory. 
B)  perpetual inventory master files. 
C)  unit cost records. 
D)  all of the above. 
A)  documents and records for transferring inventory. 
B)  perpetual inventory master files. 
C)  unit cost records. 
D)  all of the above.

Question 18

Inventory is often a significant part of a company's current assets. Because of its importance,

Accepted Answer

A)  auditors are required by auditing standards to observe the client taking a physical inventory count. 
B)  price tests must be performed to verify whether the physical counts were correctly summarized. 
C)  companies are required to use perpetual inventory systems. 
D)  auditors are required by auditing standards to take the physical inventory for the client. 
A)  auditors are required by auditing standards to observe the client taking a physical inventory count. 
B)  price tests must be performed to verify whether the physical counts were correctly summarized. 
C)  companies are required to use perpetual inventory systems. 
D)  auditors are required by auditing standards to take the physical inventory for the client.

Question 19

One of the auditor's primary concerns in verifying the transfer of inventory from one location to another is that

Accepted Answer

A)  recorded transfers exist. 
B)  all actual transfers are recorded. 
C)  the quantity, date, and description of all recorded transfers are accurate. 
D)  all of the above. 
A)  recorded transfers exist. 
B)  all actual transfers are recorded. 
C)  the quantity, date, and description of all recorded transfers are accurate. 
D)  all of the above.

Question 20

The first step in verifying the valuation of purchased inventory is in determining the valuation method used by the client. The next step is

Accepted Answer

A)  determining that all inventory that is purchased is expensed through cost of goods sold. 
B)  determining which costs should be included in the valuation of an item of inventory. 
C)  determining that all inventory on hand reconciles to the perpetual inventory records. 
D)  determining that cut-off procedures have been adhered to prior to counting inventory. 
A)  determining that all inventory that is purchased is expensed through cost of goods sold. 
B)  determining which costs should be included in the valuation of an item of inventory. 
C)  determining that all inventory on hand reconciles to the perpetual inventory records. 
D)  determining that cut-off procedures have been adhered to prior to counting inventory.

Exam 21: Audit of the Inventory and Warehousing Cycle

What are the auditor's primary concerns in verifying the transfer of inventory from one location to another?

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of

The most important part of the observation of inventory is to determine whether

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.

________ is normally characterized as a difficult and complex account to audit.

Inherent risk is typically assessed at a low level for inventory due to the nature of the asset.

In most manufacturing companies, the inventory and warehousing cycle begins with the

Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.

Discuss the four aspects of the audit of cost accounting with which the auditor is most concerned.

The audit procedure "Foot the inventory listing schedules for raw materials, work-in-process, and finished goods" provides assurance mainly for the accuracy objective for inventory pricing and compilation.

It is acceptable practice for CPA firms to use drones to evaluate inventories and other assets such as mineral deposits during audits.

Cost accounting controls are those related to the physical inventory and the consequent costs from the point at which

The design of tests of details of balances for inventory is affected by audit results from multiple cycles. Identify the cycles, other than the inventory and warehousing cycle that affect the audit of inventory.

A major source of cutoff information for sales and purchases of inventory is

Which of the following is an accurate statement regarding perpetual inventory master files?

It is not allowed under accounting standards to use different inventory valuation methods for different parts of the inventory.

The auditor is concerned with four aspects of cost accounting, including

Inventory is often a significant part of a company's current assets. Because of its importance,

One of the auditor's primary concerns in verifying the transfer of inventory from one location to another is that

The first step in verifying the valuation of purchased inventory is in determining the valuation method used by the client. The next step is

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 Materiality

Assessing the Risk of Material Misstatement

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, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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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