Question 1

To determine the client's planned amount and timing of production of a product,the auditor will review the

Accepted Answer

A) Sales forecast. 
B) Inventory reports. 
C) Production plan. 
D) Purchases journal. 
A) Sales forecast. 
B) Inventory reports. 
C) Production plan. 
D) Purchases journal.

Question 2

Which of the following methods for determining inventory cost is not allowed by GAAP?

Accepted Answer

A) Average cost. 
B) FIFO. 
C) LIFO. 
D) Standard cost. 
A) Average cost. 
B) FIFO. 
C) LIFO. 
D) Standard cost.

Question 3

The tests of controls for inventory records would include the following procedures.
A.Existence.
B.Rights.
C.Completeness.
D.Valuation.
E.Presentation and disclosure.For each of the procedures,choose the letter of the correct PCAOB assertion(s).Only one letter per procedure should be used. -----$ \quad $1. Trace a sample of sales invoices to perpetual inventory record entry of issue.
-----$ \quad $2. Select a sample of inventory item from perpetual records and vouch additions to receiving reports.
-----$ \quad $3. Select a sample of shipping documents and review the accounting summary of the quantities and prices.
-----$ \quad $4. Trace posting of sample of sales invoices to amounts in general ledger.
-----$ \quad $5. Review the appropriateness of standard costs to price inventory issues and cost of goods sold.

Accepted Answer

1.C; 2.A;

Question 4

A sample from the source documents meets the _____________________________ requirement to determine whether transactions were actually recorded in the inventory records.
Reference: Question also found in study guide

Accepted Answer

The answer of A sample from the source documents meets...

Question 5

While observing a client's annual physical inventory,an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client's perpetual records.This situation could be the result of the client's failure to record

Accepted Answer

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

Question 6

To make a year-to-year comparison of inventory turnover most meaningful,the auditor will perform the analysis

Accepted Answer

A) For the company as a whole. 
B) By division. 
C) By product. 
D) All of the above. 
A) For the company as a whole. 
B) By division. 
C) By product. 
D) All of the above.

Question 7

An auditor's tests of controls over the issuance of raw materials to production would most likely include

Accepted Answer

A) Reconciling raw materials and work-in-process perpetual inventory records to general ledger balances. 
B) Inquiring of the custodian about the procedures followed when defective materials are received from vendors. 
C) Observing that raw materials are stored in secure areas and that storeroom security is supervised by a responsible individual. 
D) Examining material requisitions and reperforming client controls designed to process and record issuances. 
A) Reconciling raw materials and work-in-process perpetual inventory records to general ledger balances. 
B) Inquiring of the custodian about the procedures followed when defective materials are received from vendors. 
C) Observing that raw materials are stored in secure areas and that storeroom security is supervised by a responsible individual. 
D) Examining material requisitions and reperforming client controls designed to process and record issuances.

Question 8

The physical observation procedures for inventory are principally designed to audit for the balance assertions of ____________________________,____________________________,and ____________________________.
Reference: Question also found in study guide

Accepted Answer

existence;

Question 9

At the completion of the physical inventory,the auditors should inspect the inventory area to ensure that all inventory has been counted.

Accepted Answer

A) True 
 B)False

Question 10

Prepare an audit plan for inventory pricing and compilation.

Accepted Answer

Note that other answers are possible. 1.

Question 11

An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about

Accepted Answer

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

Question 12

A client's physical count of inventories was higher than the inventory quantities shown in the perpetual records.This situation could be the result of the failure to record

Accepted Answer

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

Question 13

A retailer's physical count of inventory was higher than that shown by the perpetual records.Which of the following could explain the difference?

Accepted Answer

A) Inventory items had been counted but the tags placed on the items had not been taken off and added to the inventory accumulation sheets. 
B) Credit memos for several items returned by customers had not been recorded. 
C) No journal entry had been made on the retailer's books for several items returned to its suppliers. 
D) An item purchased FOB shipping point had not arrived at the date of the inventory count and had not been reflected in the perpetual records. 
A) Inventory items had been counted but the tags placed on the items had not been taken off and added to the inventory accumulation sheets. 
B) Credit memos for several items returned by customers had not been recorded. 
C) No journal entry had been made on the retailer's books for several items returned to its suppliers. 
D) An item purchased FOB shipping point had not arrived at the date of the inventory count and had not been reflected in the perpetual records.

Question 14

Which of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?

Accepted Answer

A) Maintain a perpetual inventory of only the more valuable items with frequent periodic verification of the accuracy of the perpetual inventory record. 
B) Have an independent accounting firm prepare an internal control report on the effectiveness of the controls over inventory. 
C) Have separate warehouse space for the more valuable items with frequent periodic physical counts and comparison to perpetual inventory records. 
D) Require a manager's signature for the removal of any inventory item with a value above $50. 
A) Maintain a perpetual inventory of only the more valuable items with frequent periodic verification of the accuracy of the perpetual inventory record. 
B) Have an independent accounting firm prepare an internal control report on the effectiveness of the controls over inventory. 
C) Have separate warehouse space for the more valuable items with frequent periodic physical counts and comparison to perpetual inventory records. 
D) Require a manager's signature for the removal of any inventory item with a value above $50.

Question 15

Auditors record the last bill of lading used at the time of the inventory count to

Accepted Answer

A) Search for unrecorded sales. 
B) Test cutoff. 
C) Verify ownership. 
D) All of the above. 
A) Search for unrecorded sales. 
B) Test cutoff. 
C) Verify ownership. 
D) All of the above.

Question 16

Tracing production cost accumulation forward into the production cost reports in the cost accounting department is a test for ____________________________.
Reference: Question also found in study guide

Accepted Answer

The answer of Tracing production cost accumulation forward into the...

Question 17

L.Martinez,CPA,was auditing a client,Marvelous Retail Company and selected a sample of inventory items from the perpetual records and vouched additions to receiving reports.This procedure was intended to satisfy which POCAOB assertion?

Accepted Answer

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

Question 18

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's balance assertions about

Accepted Answer

A) Existence. 
B) Rights and obligations. 
C) Completeness. 
D) Accuracy and valuation. 
A) Existence. 
B) Rights and obligations. 
C) Completeness. 
D) Accuracy and valuation.

Question 19

An auditor is examining a nonpublic company's inventory procurement system and has decided to perform tests of controls.Under which of the following conditions should the auditor perform tests of controls?

Accepted Answer

A) Significant weaknesses were found in the company's internal control. 
B) The auditor hopes to reduce the amount of work to be done in assessing inherent risk. 
C) The auditor believes that testing the controls could lead to a reduction in overall audit time and cost. 
D) Tests of controls are always performed when the auditor begins to assess control risk. 
A) Significant weaknesses were found in the company's internal control. 
B) The auditor hopes to reduce the amount of work to be done in assessing inherent risk. 
C) The auditor believes that testing the controls could lead to a reduction in overall audit time and cost. 
D) Tests of controls are always performed when the auditor begins to assess control risk.

Question 20

Counting different parts of inventory at different times of the year is called

Accepted Answer

A) LIFO inventory. 
B) Inventory cutoff. 
C) Cycle counting. 
D) Just-in-time inventory. 
A) LIFO inventory. 
B) Inventory cutoff. 
C) Cycle counting. 
D) Just-in-time inventory.

To determine the client's planned amount and timing of production of a product,the auditor will review the

Which of the following methods for determining inventory cost is not allowed by GAAP?

A sample from the source documents meets the _____________________________ requirement to determine whether transactions were actually recorded in the inventory records. Reference: Question also found in study guide

While observing a client's annual physical inventory,an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client's perpetual records.This situation could be the result of the client's failure to record

To make a year-to-year comparison of inventory turnover most meaningful,the auditor will perform the analysis

An auditor's tests of controls over the issuance of raw materials to production would most likely include

The physical observation procedures for inventory are principally designed to audit for the balance assertions of ,,and . Reference: Question also found in study guide

At the completion of the physical inventory,the auditors should inspect the inventory area to ensure that all inventory has been counted.

Prepare an audit plan for inventory pricing and compilation.

An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about

A client's physical count of inventories was higher than the inventory quantities shown in the perpetual records.This situation could be the result of the failure to record

A retailer's physical count of inventory was higher than that shown by the perpetual records.Which of the following could explain the difference?

Which of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?

Auditors record the last bill of lading used at the time of the inventory count to

Tracing production cost accumulation forward into the production cost reports in the cost accounting department is a test for ____________________________. Reference: Question also found in study guide

L.Martinez,CPA,was auditing a client,Marvelous Retail Company and selected a sample of inventory items from the perpetual records and vouched additions to receiving reports.This procedure was intended to satisfy which POCAOB assertion?

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's balance assertions about

An auditor is examining a nonpublic company's inventory procurement system and has decided to perform tests of controls.Under which of the following conditions should the auditor perform tests of controls?

Counting different parts of inventory at different times of the year is called

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits, Governmental Audits, and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

Exam 9: Production Cycle

To determine the client's planned amount and timing of production of a product,the auditor will review the

Which of the following methods for determining inventory cost is not allowed by GAAP?

A sample from the source documents meets the _____________________________ requirement to determine whether transactions were actually recorded in the inventory records. Reference: Question also found in study guide

While observing a client's annual physical inventory,an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client's perpetual records.This situation could be the result of the client's failure to record

To make a year-to-year comparison of inventory turnover most meaningful,the auditor will perform the analysis

An auditor's tests of controls over the issuance of raw materials to production would most likely include

The physical observation procedures for inventory are principally designed to audit for the balance assertions of ____________________________,____________________________,and ____________________________. Reference: Question also found in study guide

At the completion of the physical inventory,the auditors should inspect the inventory area to ensure that all inventory has been counted.

Prepare an audit plan for inventory pricing and compilation.

An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about

A client's physical count of inventories was higher than the inventory quantities shown in the perpetual records.This situation could be the result of the failure to record

A retailer's physical count of inventory was higher than that shown by the perpetual records.Which of the following could explain the difference?

Which of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?

Auditors record the last bill of lading used at the time of the inventory count to

Tracing production cost accumulation forward into the production cost reports in the cost accounting department is a test for ____________________________. Reference: Question also found in study guide

L.Martinez,CPA,was auditing a client,Marvelous Retail Company and selected a sample of inventory items from the perpetual records and vouched additions to receiving reports.This procedure was intended to satisfy which POCAOB assertion?

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's balance assertions about

An auditor is examining a nonpublic company's inventory procurement system and has decided to perform tests of controls.Under which of the following conditions should the auditor perform tests of controls?

Counting different parts of inventory at different times of the year is called

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits, Governmental Audits, and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

The physical observation procedures for inventory are principally designed to audit for the balance assertions of ,,and . Reference: Question also found in study guide