Exam 21: Audit of the Inventory and Warehousing Cycle

An auditor selects a random sampling of tag numbers and identifies the tag with that number attached to the actual inventory. The purpose of the procedure is to

Significant improvements in audit effectiveness and efficiency may be achieved by the use of audit data analytics in the inventory and warehousing cycle.

The pricing and compilation of inventory are audited using substantive analytical procedures and test of details of the balances.

The auditor's tour of the client's inventory facilities should be led by

Ratios such as the gross margin percentage calculated as part of risk assessment procedures may be performed using aggregate data.

Which one of the following substantive analytical procedures would be most useful in alerting the auditor to the possibility inventory and cost of goods sold being overstated or understated?

Given the following information about your audit client, perform analytical procedures and comment on your findings.

Auditors should design appropriate tests of internal controls over cost accounting records based upon their understanding of those records and the extent they will be relied upon for reducing substantive tests.

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

Inventory is a complex area to audit for all except which of the following reasons?

The audit of year-end physical inventories should include steps to verify that the client's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a

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

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.

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

Management typically allocates overhead using total raw materials as the basis for the allocation.

As part of the risk assessment process, the auditor will consider whether any of the identified risks of material misstatement found during the audit of the inventory and warehousing cycle are considered a significant risk.

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

The adequacy of internal controls over the physical count of inventory is one of the key determinants of the amount of time needed to test inventory.

When auditors observe the client counting inventory, they should be careful to do all of the following except

Auditors need to understand the client's physical inventory count controls before the count of the inventory begins so that