Exam 21: Audit of the Inventory and Warehousing Cycle

When performing price tests for purchased inventory, the auditor would not be concerned with the most recent vendors' invoices if the client uses the FIFO valuation method.

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

The inventory and warehousing cycle is unique because of its close relationship to other transaction cycles.

McKesson & Robbins Company is a well-known audit case involving auditor responsibility. What occurred at the McKesson & Robbins Company to change the way in which auditors audit inventory?

Explain why the audit of work in process and finished goods inventory is generally more complex than the audit of purchased inventory.

Which one of the following substantive analytical procedures would be most useful in alerting the auditor to the possibility of obsolete inventory?

When there are no perpetual inventory files and inventory is material,

When performing inventory valuation tests, the auditor must be concerned that the method is in accordance with accounting standards.

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.

In process cost systems, costs are accumulated by individual jobs.

Cost of goods sold is generally one of the largest accounts on the income statement.

Comparing the physical counts with the perpetual inventory master files satisfies the balance-related audit objective of

Inventory valuation issues include the estimation of inventory obsolescence and the allocation of manufacturing costs to inventory.

In order to strengthen controls over cost accounting information, a company should consider implementing

Auditor tests of the physical controls over raw materials, work in process, and finished goods are generally limited to

Controls which provide a means of ensuring that the physical counts are properly summarized, priced at the same amount as the unit records, correctly extended and totaled, and included in the general ledger at the proper amount are known as

You are gathering evidence for the audit objective that existing inventory items are included in the inventory listing schedule. The audit procedure that would provide you with the best evidence to confirm this objective is

In pricing raw materials in manufactured products, auditors must consider both the unit cost of the raw materials and the number of units required to manufacture a unit of output.

Cost of goods sold is generally a residual of beginning inventory less acquisitions plus ending inventory.

Costs used to value inventory must be tested by the auditor only to determine whether the client has followed an inventory method which is in accordance with generally accepted accounting principles.