Question 1

Which of the following is not a function within the inventory and warehousing cycle?

Accepted Answer

A)  process the goods 
B)  store raw materials 
C)  ship finished goods 
D)  process invoices for shipped goods 
A)  process the goods 
B)  store raw materials 
C)  ship finished goods 
D)  process invoices for shipped goods

Question 2

Discuss the four aspects of the audit of cost accounting with which the auditor is most concerned.

Accepted Answer

The auditor is most concerned with:
• Ph

Question 3

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

Accepted Answer

A)  Compare gross margin percentage with previous years'. 
B)  Compare unit costs of inventory with previous years'. 
C)  Compare inventory turnover ratio with previous years'. 
D)  Compare current year manufacturing costs with previous years'. 
A)  Compare gross margin percentage with previous years'. 
B)  Compare unit costs of inventory with previous years'. 
C)  Compare inventory turnover ratio with previous years'. 
D)  Compare current year manufacturing costs with previous years'.

Question 4

The design of tests of details of balances for inventory is affected by audit results from multiple cycles. Identify the cycles, other than the inventory and warehousing cycle that affect the audit of inventory.

Accepted Answer

Tests of details of balances for invento

Question 5

If the perpetual inventory master files show lower quantities of inventory than the physical count, one explanation of the difference might be unrecorded sales.

Accepted Answer

A) True 
 B)False

Question 6

When an auditor observes that personnel who are responsible for physically counting inventory are not following the inventory instructions, the auditor should:

Accepted Answer

A)  contact a client's supervisor in an attempt to correct the problem. 
B)  modify the client's physical inventory instructions. 
C)  not discuss the problem with client's supervisor in order to maintain independence. 
D)  assign audit staff to the inventory count. 
A)  contact a client's supervisor in an attempt to correct the problem. 
B)  modify the client's physical inventory instructions. 
C)  not discuss the problem with client's supervisor in order to maintain independence. 
D)  assign audit staff to the inventory count.

Question 7

The most important part of the observation of inventory is to determine whether:

Accepted Answer

A)  all counts are accurate. 
B)  the inventory-takers are qualified. 
C)  obsolete inventory has been identified. 
D)  the physical count is being taken in accordance with the client's instructions. 
A)  all counts are accurate. 
B)  the inventory-takers are qualified. 
C)  obsolete inventory has been identified. 
D)  the physical count is being taken in accordance with the client's instructions.

Question 8

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:

Accepted Answer

A)  sale in the current period. 
B)  sale in the subsequent period. 
C)  purchase in the current period. 
D)  purchase return in the subsequent period. 
A)  sale in the current period. 
B)  sale in the subsequent period. 
C)  purchase in the current period. 
D)  purchase return in the subsequent period.

Question 9

When may auditors observe the physical inventory count?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 10

Which of the following is a significant audit concern related to the transfer of inventory from one location to another?

Accepted Answer

A)  recorded transfers occurred 
B)  transfers were properly transported 
C)  transfers were properly planned 
D)  transfers represent efficient movement of assets 
A)  recorded transfers occurred 
B)  transfers were properly transported 
C)  transfers were properly planned 
D)  transfers represent efficient movement of assets

Question 11

What are two factors affecting the complexity of the audit of inventory?

Accepted Answer

• Inventory is often the largest account

Question 12

When an outside specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialist's report is acceptable if:

Accepted Answer

A)  the auditor's report contains a reference to the assumption of full responsibility. 
B)  the auditor is satisfied through application of appropriate procedures as to the reputation and competence of the specialist. 
C)  the auditor conducted the same audit tests and procedures as would have been applicable if the client's employees took the physical inventory. 
D)  circumstances made it impracticable or impossible for the auditor either to do the work personally or observe the work done by the inventory firm. 
A)  the auditor's report contains a reference to the assumption of full responsibility. 
B)  the auditor is satisfied through application of appropriate procedures as to the reputation and competence of the specialist. 
C)  the auditor conducted the same audit tests and procedures as would have been applicable if the client's employees took the physical inventory. 
D)  circumstances made it impracticable or impossible for the auditor either to do the work personally or observe the work done by the inventory firm.

Question 13

Which of the following situations would most likely require special audit planning?

Accepted Answer

A)  Inventory consists of precious stones. 
B)  Some items of factory and office equipment do not bear identification numbers. 
C)  Depreciation methods used on the client's tax return differ from those used on the books. 
D)  Assets costing less than $500 are expensed even though their expected life exceeds one year. 
A)  Inventory consists of precious stones. 
B)  Some items of factory and office equipment do not bear identification numbers. 
C)  Depreciation methods used on the client's tax return differ from those used on the books. 
D)  Assets costing less than $500 are expensed even though their expected life exceeds one year.

Question 14

Discuss the key control procedures relating to the client's physical count of inventory.

Accepted Answer

The key control procedures relating to t

Question 15

When performing audit tests of pricing and compilation for inventory, the client's perpetual inventory master file may be used in place of vendors' invoices if controls over the perpetual inventory master file are adequate.

Accepted Answer

A) True 
 B)False

Question 16

In any company involved in manufacturing, an adequate cost accounting internal control system is necessary to indicate the relative profitability of the various products for management planning and control and to:

Accepted Answer

A)  determine variances from standards. 
B)  determine variances from budgets. 
C)  value inventories for financial statement purposes. 
D)  value inventories for audit verification. 
A)  determine variances from standards. 
B)  determine variances from budgets. 
C)  value inventories for financial statement purposes. 
D)  value inventories for audit verification.

Question 17

The test of details of balance procedure which requires the auditor to account for unused inventory tag numbers to make sure none have been deleted is associated with the audit objective of:

Accepted Answer

A)  accuracy. 
B)  existence. 
C)  detail tie-in. 
D)  completeness. 
A)  accuracy. 
B)  existence. 
C)  detail tie-in. 
D)  completeness.

Question 18

It is frequently possible to test the physical inventory prior to the balance sheet date when:

Accepted Answer

A)  there are accurate perpetual inventory master files. 
B)  year-end sales are small. 
C)  the internal control system is no better at year-end than at an earlier point in time. 
D)  the client counts inventory at interim dates. 
A)  there are accurate perpetual inventory master files. 
B)  year-end sales are small. 
C)  the internal control system is no better at year-end than at an earlier point in time. 
D)  the client counts inventory at interim dates.

Question 19

The audit procedure "observe the client taking a physical inventory count and test the count" is sufficient to determine all of the following except:

Accepted Answer

A)  whether recorded inventory actually exists. 
B)  whether recorded inventory was properly valued by the client. 
C)  whether recorded inventory was properly counted by the client. 
D)  whether client inventory instruction had properly been followed. 
A)  whether recorded inventory actually exists. 
B)  whether recorded inventory was properly valued by the client. 
C)  whether recorded inventory was properly counted by the client. 
D)  whether client inventory instruction had properly been followed.

Question 20

The auditor's tests of the adequacy of the physical controls over raw materials, work-in-process, and finished goods are usually restricted to:

Accepted Answer

A)  observation and inquiry. 
B)  documentation and observation. 
C)  documentation and confirmation. 
D)  documentation and inquiry. 
A)  observation and inquiry. 
B)  documentation and observation. 
C)  documentation and confirmation. 
D)  documentation and inquiry.

Exam 21: Audit of the Inventory and Warehousing Cycle

Which of the following is not a function within the inventory and warehousing cycle?

Discuss the four aspects of the audit of cost accounting with which the auditor is most concerned.

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

The design of tests of details of balances for inventory is affected by audit results from multiple cycles. Identify the cycles, other than the inventory and warehousing cycle that affect the audit of inventory.

If the perpetual inventory master files show lower quantities of inventory than the physical count, one explanation of the difference might be unrecorded sales.

When an auditor observes that personnel who are responsible for physically counting inventory are not following the inventory instructions, the auditor should:

The most important part of the observation of inventory is to determine whether:

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:

When may auditors observe the physical inventory count?

Which of the following is a significant audit concern related to the transfer of inventory from one location to another?

What are two factors affecting the complexity of the audit of inventory?

When an outside specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialist's report is acceptable if:

Which of the following situations would most likely require special audit planning?

Discuss the key control procedures relating to the client's physical count of inventory.

When performing audit tests of pricing and compilation for inventory, the client's perpetual inventory master file may be used in place of vendors' invoices if controls over the perpetual inventory master file are adequate.

In any company involved in manufacturing, an adequate cost accounting internal control system is necessary to indicate the relative profitability of the various products for management planning and control and to:

The test of details of balance procedure which requires the auditor to account for unused inventory tag numbers to make sure none have been deleted is associated with the audit objective of:

It is frequently possible to test the physical inventory prior to the balance sheet date when:

The audit procedure "observe the client taking a physical inventory count and test the count" is sufficient to determine all of the following except:

The auditor's tests of the adequacy of the physical controls over raw materials, work-in-process, and finished goods are usually restricted to:

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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