Exam 12: Inventories and Cost of Goods Sold

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

When the auditors cannot satisfy themselves as to the accuracy of ending inventory and a material misstatement may exist,they normally may still give an unqualified opinion on the client's income statement.

An inventory turnover analysis is useful to the auditor because it may detect:

In verifying credits to perpetual inventory records of a non-manufacturing firm,the auditor would be most interested in examining the:

The lower of cost or market test by the auditors is generally designed to assure that inventories are not valued above their net realizable values.

To assure that all purchases are authorized before payment is made,accounting department personnel should match the vendor's invoice to:

In verifying debits to perpetual inventory records of a non-manufacturing firm,the auditor would be most interested in examining the:

Which of the following is an effective control that encourages receiving department personnel to count and inspect all merchandise received?

Observation of inventories is a generally accepted auditing standard.

The auditor determines that each of the following objectives will be part of your audit of Bozington,Co.,Inc.For each audit objective,select a substantive procedure that would help to achieve that objective.Each of the procedures may be used once,more than once,or not at all. Audit Objective 1.Establish the completeness of inventories. 2.Establish the accuracy of cost amounts of inventories. 3.Determine that the presentation and disclosure of inventories and cost of goods sold is adequate. 4.Establish that the client has rights to the recorded inventories. 5.Establish the existence of ending inventory. Substantive procedures a.Examine current vendors' price lists. b.Review drafts of the financial statements. c.Select a sample of items during the physical inventory count and determine that they have been included on count sheets. d.Select a sample of recorded items and examine supporting vendors' invoices and contracts. e.Select a sample of recorded items on count sheets during the physical inventory count and determine that items are on hand. f.Test the reasonableness of general and administrative labor rates.

For good internal control over purchase transactions,purchases should be made from approved vendors by the department needing the goods.

Your audit client,Wigley is a retail department store that does not produce any products.You are currently working on the inventory portion of the audit.In obtaining audit evidence in support of financial statement assertions,the auditor develops specific audit objectives in light of those assertions.Audit procedures are then selected to accomplish audit objectives. For each specific inventory audit objective listed (Audit Objectives tab)select the most closely related account balance financial statement assertion and the most appropriate audit procedure.Financial statement assertions and audit procedures may be selected once,more than once,or not at all.

Which of the following best describes the auditors' response to a client's use of statistical sampling techniques to estimate the inventory?

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise.Which of the following procedures provides the greatest assurance that this control is operating effectively?

Which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper?

Effective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has:

A client uses a perpetual inventory system.Would one expect a credit to which of the following accounts at the point of sale? Sales Inventory A) Yes Yees B) Yes No C) No Yes D) No No

Which of the following is true about the auditors' observation of the client's physical inventory?

To test the client's cutoff of inventories,the auditors will make a record of the serial number of the final receiving and shipping documents used prior to the taking of the physical inventory.

Which statement is correct relating to the count of inventory when a company that specializes in taking such counts ("the company")is involved with counting a client's inventory?