Question 1

Pricing manufactured inventory is difficult. Auditors must evaluate the method of allocating manufacturing overhead for all but which of the following?

Accepted Answer

A)  reasonableness 
B)  computational correctness 
C)  compliance with generally accepted auditing standards 
D)  consistency

Question 2

If an auditor were concerned with obtaining evidence about the appropriateness of the value of inventory, which of the following tests would be most appropriate?

Accepted Answer

A)  compilation tests 
B)  price tests 
C)  confirmation of inventory held by outside parties 
D)  physical examination of the inventory

Question 3

To test for proper sales cutoff, an auditor would obtain the number of the last bill of lading issued during the period under audit and verify that the item shipped had been excluded from the inventory listing.

Accepted Answer

A) True 
 B)False

Question 4

Cost accounting systems and controls are the same for all manufacturing companies.

Accepted Answer

A) True 
 B)False

Question 5

A comparison of the current year's inventory turnover ratio with previous years' may indicate the presence of obsolete inventory.

Accepted Answer

A) True 
 B)False

Question 6

From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories?

Accepted Answer

A)  observation of physical inventory counts 
B)  written inventory representations from management 
C)  confirmation of inventories in a public warehouse 
D)  auditor's recomputation of inventory extensions

Question 7

In the audit of inventory, the auditor and client are jointly responsible for making and recording the count of physical inventory, while the auditor is responsible for drawing conclusions about the adequacy of the physical inventory.

Accepted Answer

A) True 
 B)False

Question 8

If a client intends to count inventory at an interim date, the auditor should expect there to be all of the following except

Accepted Answer

A)  controls over the preparation and maintenance of perpetual inventory records. 
B)  competent personnel assigned to count the inventory. 
C)  third-party inventory counting specialists. 
D)  an adequately designed plan to count the inventory.

Question 9

Inventory compilation tests are used to verify that the inventory is recorded at the lower of cost or market.

Accepted Answer

A) True 
 B)False

Question 10

When determining the sample size for the number of items the auditor should count during the physical inventory,

Accepted Answer

A)  it is easy to quantify the number of items based on a formula developed by the AICPA. 
B)  one of the key determinants that must be considered is internal control over the physical count. 
C)  one of the key determinants that must be considered is the cost involved. 
D)  generally accepted auditing standards require that at least 80% of the dollar value of the inventory should be included in the sample.

Question 11

Auditors test the quantity of materials charged to work-in-process by tracing these quantities to

Accepted Answer

A)  cost ledgers. 
B)  perpetual inventory records. 
C)  receiving reports. 
D)  material requisitions.

Question 12

________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.

Accepted Answer

A)  Just-in-time production systems 
B)  Job cost systems 
C)  Process cost systems 
D)  Manufacturing systems

Question 13

The inventory and warehousing cycle can be thought of as having two separate but closely related systems, one involving the actual physical flow of goods, and the other the

Accepted Answer

A)  related costs. 
B)  storage of the goods. 
C)  internal control over those goods. 
D)  prevention of waste, obsolescence, and theft.

Question 14

In valuing inventory, the auditor must consider all but which of the following factors?

Accepted Answer

A)  The valuation method must be in accordance with GAAP. 
B)  The valuation method must be applied on a consistent basis. 
C)  The inventory must be valued at the lower of cost or market. 
D)  LIFO must be used for work-in-process inventory.

Question 15

Physical examination is an essential type of evidence used to verify the existence and count of inventory.

Accepted Answer

A) True 
 B)False

Question 16

Auditor tests of physical controls over raw materials, work-in-process, and finished goods are performed by

Accepted Answer

A)   
B)   
C)   
D)

Question 17

If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count, the auditor should ordinarily

Accepted Answer

A)  withdraw from the engagement. 
B)  issue a qualified audit report. 
C)  conduct expanded observation tests of physical inventory. 
D)  hire a specialist to assist the auditor.

Question 18

When auditing inventory cost accounting, the auditor is concerned with all of the following except for

Accepted Answer

A)  net realizable value. 
B)  unit cost records. 
C)  physical controls over inventory. 
D)  documents and records for transferring inventory.

Question 19

The test of details of balance procedure which requires the auditor to perform tests of lower of cost or market, selling price, and obsolescence is an attempt to satisfy the objective of

Accepted Answer

A)  existence. 
B)  completeness. 
C)  accuracy. 
D)  realizable value.

Question 20

The physical observation of the inventory and the acquisition of raw materials are part of the inventory and warehousing cycle.

Accepted Answer

A) True 
 B)False

Exam 21: Audit of the Inventory and Warehousing Cycle

Pricing manufactured inventory is difficult. Auditors must evaluate the method of allocating manufacturing overhead for all but which of the following?

If an auditor were concerned with obtaining evidence about the appropriateness of the value of inventory, which of the following tests would be most appropriate?

To test for proper sales cutoff, an auditor would obtain the number of the last bill of lading issued during the period under audit and verify that the item shipped had been excluded from the inventory listing.

Cost accounting systems and controls are the same for all manufacturing companies.

A comparison of the current year's inventory turnover ratio with previous years' may indicate the presence of obsolete inventory.

From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories?

In the audit of inventory, the auditor and client are jointly responsible for making and recording the count of physical inventory, while the auditor is responsible for drawing conclusions about the adequacy of the physical inventory.

If a client intends to count inventory at an interim date, the auditor should expect there to be all of the following except

Inventory compilation tests are used to verify that the inventory is recorded at the lower of cost or market.

When determining the sample size for the number of items the auditor should count during the physical inventory,

Auditors test the quantity of materials charged to work-in-process by tracing these quantities to

________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.

The inventory and warehousing cycle can be thought of as having two separate but closely related systems, one involving the actual physical flow of goods, and the other the

In valuing inventory, the auditor must consider all but which of the following factors?

Physical examination is an essential type of evidence used to verify the existence and count of inventory.

Auditor tests of physical controls over raw materials, work-in-process, and finished goods are performed by

If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count, the auditor should ordinarily

When auditing inventory cost accounting, the auditor is concerned with all of the following except for

The test of details of balance procedure which requires the auditor to perform tests of lower of cost or market, selling price, and obsolescence is an attempt to satisfy the objective of

The physical observation of the inventory and the acquisition of raw materials are part of the inventory and warehousing cycle.