Question 1

An auditor generally tests physical security controls over inventory by

Accepted Answer

A)  Test counts and cutoff procedures. 
B)  Examination and reconciliation. 
C)  Inspection and recomputation. 
D)  Inquiry and observation. 
A)  Test counts and cutoff procedures. 
B)  Examination and reconciliation. 
C)  Inspection and recomputation. 
D)  Inquiry and observation.

Question 2

Observing an entity's inventory held on consignment by others tests the assertion of

Accepted Answer

A)  Existence. 
B)  Completeness. 
C)  Valuation. 
D)  Rights and obligations. 
A)  Existence. 
B)  Completeness. 
C)  Valuation. 
D)  Rights and obligations.

Question 3

Which assertion for ending inventory is most likely violated if the gross profit percentage is much greater than last year?

Accepted Answer

A)  Existence. 
B)  Completeness. 
C)  Rights and obligations. 
D)  Valuation and allocation. 
A)  Existence. 
B)  Completeness. 
C)  Rights and obligations. 
D)  Valuation and allocation.

Question 4

The auditor's observation of inventory is a generally accepted auditing procedure.

Accepted Answer

A) True 
 B)False

Question 5

Below is information relating to the inventory management of Quick Sell. Using analytical procedures, identify any concerns you have about misstatements in the financial statements.

Accepted Answer

@#IMG-DLM& Inventory has significantly increased,

Question 6

Once the controls in the inventory system have been tested, the auditor sets the level of control risk.

Accepted Answer

A) True 
 B)False

Question 7

Failure to record inventory in the proper period can affect all of the following accounts except:

Accepted Answer

A)  Sales. 
B)  Receivables. 
C)  Cost of Goods Sold. 
D)  Prepaid Expenses. 
A)  Sales. 
B)  Receivables. 
C)  Cost of Goods Sold. 
D)  Prepaid Expenses.

Question 8

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

Accepted Answer

A) True 
 B)False

Question 9

We know from cost accounting that there are three components that make up the standard costs for inventory. Explain how an auditor could test each of these components for a company that manufactures pillows.

Accepted Answer

Materials - The auditor could obtain a l

Question 10

An entity's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record

Accepted Answer

A)  Sales. 
B)  Sales returns. 
C)  Purchases. 
D)  Purchase discounts. 
A)  Sales. 
B)  Sales returns. 
C)  Purchases. 
D)  Purchase discounts.

Question 11

The audit of year-end physical inventories should include steps to verify that the entity'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

Accepted Answer

A)  Sale in the subsequent period. 
B)  Purchase in the current period. 
C)  Sale in the current period. 
D)  Purchase return in the subsequent period. 
A)  Sale in the subsequent period. 
B)  Purchase in the current period. 
C)  Sale in the current period. 
D)  Purchase return in the subsequent period.

Question 12

In order to efficiently establish the correctness of the accounts payable cutoff, an auditor will be most likely to

Accepted Answer

A)  Coordinate cutoff tests with physical inventory observation. 
B)  Compare cutoff reports with purchase orders. 
C)  Compare vendors' invoices with vendors' statements. 
D)  Coordinate mailing of confirmations with cutoff tests. 
A)  Coordinate cutoff tests with physical inventory observation. 
B)  Compare cutoff reports with purchase orders. 
C)  Compare vendors' invoices with vendors' statements. 
D)  Coordinate mailing of confirmations with cutoff tests.

Question 13

List five things an auditor should do during the observation of the physical count of inventory.

Accepted Answer

• Ensure that no production is scheduled

Question 14

If the perpetual inventory records 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 15

The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with

Accepted Answer

A)  Purchase requisitions. 
B)  Receiving reports. 
C)  Purchase orders. 
D)  Vendor payments. 
A)  Purchase requisitions. 
B)  Receiving reports. 
C)  Purchase orders. 
D)  Vendor payments.

Question 16

The safeguarding of inventory most likely includes

Accepted Answer

A)  Comparison of the information contained on the purchase requisitions, purchase orders, receiving reports, and vendors' invoices. 
B)  Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count. 
C)  Analytical procedures for raw materials, goods in process, and finished goods that identify unusual transactions, theft, and obsolescence. 
D)  Application of established overhead rates on the basis of direct labor hours or direct labor costs. 
A)  Comparison of the information contained on the purchase requisitions, purchase orders, receiving reports, and vendors' invoices. 
B)  Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count. 
C)  Analytical procedures for raw materials, goods in process, and finished goods that identify unusual transactions, theft, and obsolescence. 
D)  Application of established overhead rates on the basis of direct labor hours or direct labor costs.

Question 17

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of

Accepted Answer

A)  Valuation. 
B)  Rights and obligations. 
C)  Existence. 
D)  Completeness. 
A)  Valuation. 
B)  Rights and obligations. 
C)  Existence. 
D)  Completeness.

Question 18

You are auditing SBT, which has a December 31st year-end. On December 24th, the person responsible for processing receiving reports and recording the receipt of inventory became very ill and was out of the office for a week. Due to the company's small staff and the holiday season, a number of the receiving reports were not processed on a timely basis. As an auditor, on which assertion would you place a high importance for this entity and how would you test for it?

Accepted Answer

The cutoff assertion would be very impor

Question 19

When outside firms of non-accountants specializing in physical inventory counts are used to count, list, price, and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the auditor will ordinarily

Accepted Answer

A)  Consider the report of the outside inventory firm to be an acceptable alternative procedure to the observation of physical inventories. 
B)  Make or observe some physical counts of the inventory, recompute certain inventory calculations, and test certain inventory transactions. 
C)  Increase the extent of work on the physical count of inventory. 
D)  Consider the reduced audit effort with respect to the physical count of inventory as a scope limitation. 
A)  Consider the report of the outside inventory firm to be an acceptable alternative procedure to the observation of physical inventories. 
B)  Make or observe some physical counts of the inventory, recompute certain inventory calculations, and test certain inventory transactions. 
C)  Increase the extent of work on the physical count of inventory. 
D)  Consider the reduced audit effort with respect to the physical count of inventory as a scope limitation.

Question 20

An approved purchase requisition form authorizes shipment of goods to customers.

Accepted Answer

A) True 
 B)False

An auditor generally tests physical security controls over inventory by

Observing an entity's inventory held on consignment by others tests the assertion of

Which assertion for ending inventory is most likely violated if the gross profit percentage is much greater than last year?

The auditor's observation of inventory is a generally accepted auditing procedure.

Below is information relating to the inventory management of Quick Sell. Using analytical procedures, identify any concerns you have about misstatements in the financial statements.

Once the controls in the inventory system have been tested, the auditor sets the level of control risk.

Failure to record inventory in the proper period can affect all of the following accounts except:

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

We know from cost accounting that there are three components that make up the standard costs for inventory. Explain how an auditor could test each of these components for a company that manufactures pillows.

An entity's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record

The audit of year-end physical inventories should include steps to verify that the entity'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

In order to efficiently establish the correctness of the accounts payable cutoff, an auditor will be most likely to

List five things an auditor should do during the observation of the physical count of inventory.

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

The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with

The safeguarding of inventory most likely includes

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of

When outside firms of non-accountants specializing in physical inventory counts are used to count, list, price, and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the auditor will ordinarily

An approved purchase requisition form authorizes shipment of goods to customers.

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 13: Auditing the Inventory Management Process

An auditor generally tests physical security controls over inventory by

Observing an entity's inventory held on consignment by others tests the assertion of

Which assertion for ending inventory is most likely violated if the gross profit percentage is much greater than last year?

The auditor's observation of inventory is a generally accepted auditing procedure.

Below is information relating to the inventory management of Quick Sell. Using analytical procedures, identify any concerns you have about misstatements in the financial statements.

Once the controls in the inventory system have been tested, the auditor sets the level of control risk.

Failure to record inventory in the proper period can affect all of the following accounts except:

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

We know from cost accounting that there are three components that make up the standard costs for inventory. Explain how an auditor could test each of these components for a company that manufactures pillows.

An entity's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record

The audit of year-end physical inventories should include steps to verify that the entity'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

In order to efficiently establish the correctness of the accounts payable cutoff, an auditor will be most likely to

List five things an auditor should do during the observation of the physical count of inventory.

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

The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with

The safeguarding of inventory most likely includes

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of

When outside firms of non-accountants specializing in physical inventory counts are used to count, list, price, and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the auditor will ordinarily

An approved purchase requisition form authorizes shipment of goods to customers.

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters