Question 1

Which of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse?

Accepted Answer

A) Confirmation. 
B) Obtaining reports on internal control at the warehouse. 
C) Observation. 
D) Corresponding with the state agency regarding the authenticity of the public warehouse.

Question 2

Assume that you have completed your procedures on the audit of Glick Corporation and have found the following audit issues.Indicate the account balance financial statement assertion that is likely to be most impacted by each of the issues,using the following key:
1.It appears that the selling price of certain of the company's products has declined significantly.
2.In performing a price test of inventory items,you found a number of items priced below cost.
3.It was discovered that a number of the items on hand and counted in the inventory were on consignment.
4.Inventory items were stored in three different warehouses and the auditors fear that some items might be in an undisclosed fourth warehouse.
5.During the physical inventory it was noted that a number of inventory items were damaged
6.Some inventory items owned by the company were in transit during the physical inventory.

Accepted Answer

The answer of Assume that you have completed your procedures...

Question 3

An auditor performs a test to determine whether all merchandise for which the client was billed was received.The population for this test consists of all:

Accepted Answer

A) Merchandise received. 
B) Vendor's invoices. 
C) Canceled checks. 
D) Receiving reports.

Question 4

Which of the following is an auditor least likely to consider a departure from U.S.generally accepted accounting principles?

Accepted Answer

A) Valuing inventory at cost. 
B) Including in inventory items that are consigned out to vendors, but not yet sold. 
C) Using standard cost as the measure of inventory cost. 
D) Including in inventory items shipped subsequent to year-end, but for which valid orders did exist at year-end.

Question 5

The receiving department should accept only goods for which there is an approved purchase order on hand.

Accepted Answer

A) True 
 B)False

Question 6

The use of a "blind" purchase order is designed to prevent errors by the:

Accepted Answer

A) Purchase department. 
B) Receiving department. 
C) Stores department. 
D) Accounting department.

Question 7

To measure how effectively a client employs its assets,an auditor calculates inventory turnover by dividing the average inventory into:

Accepted Answer

A) Net sales. 
B) Cost of good sold. 
C) Operating income. 
D) Gross sales.

Question 8

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

Accepted Answer

A) The count must be made at year-end. 
B) The auditors should supervise the client's personnel. 
C) The auditors' observation addresses the existence assertion. 
D) The auditors should justify any omission of the observation in the audit report.

Question 9

The proper cutoff of inventories is best achieved when the client uses prenumbered purchase orders.

Accepted Answer

A) True 
 B)False

Question 10

The client's physical count of inventories is lower than the inventory quantities in the perpetual records.This could be the result of a failure to record:

Accepted Answer

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

Question 11

In auditing a client's inventory,the auditors must be concerned with the detection of goods that are both damaged and obsolete.
a.Why are the auditors concerned with detecting damaged and obsolete goods?
b.How do the auditors test for damaged goods in the client's inventory?
c.How do the auditors test for obsolete goods in the client's inventory?

Accepted Answer

The answer of In auditing a client's inventory,the auditors must...

Question 12

To best ascertain that a company has properly included merchandise that it owns in its ending inventory,the auditors should review and test the:

Accepted Answer

A) Terms of the open purchase orders. 
B) Purchase cutoff procedures. 
C) Contractual commitments made by the purchasing department. 
D) Purchase invoices received on or around year end.

Question 13

Auditors should not review the client's planning of the physical inventory.

Accepted Answer

A) True 
 B)False

Question 14

A client uses a periodic inventory system.Would one expect a credit to which of the following accounts at the point of sale? $$\begin{array} { l c c } 
& \text { Sales } & \text { Inventory } \
\text { A) } & \text { Yes } & \text { Yes } \
\text { B) } & \text { Yes } & \text { No } \
\text { C) } & \text { No } & \text { Yes } \
\text { D) } & \text { No } & \text { No }
\end{array}$$

Accepted Answer

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

Question 15

Which of the following is least likely to be accurate statement concerning characteristics of an audit?

Accepted Answer

A) An analysis of inventory turnover addresses whether the proper method of determining inventory costs--as contrasted to market values--is being applied. 
B) Characteristics of the double entry bookkeeping system make it possible to test for overstated sales when tests of accounts receivable are being performed. 
C) The direction of tests for overstatement errors is generally directed from the recorded entry to source documents. 
D) Use of a perpetual rather than a periodic inventory system is likely to affect the nature of cutoff errors made at year-end.

Question 16

In auditing a manufacturing entity,which of the following procedures would an auditor least likely perform to determine whether slow-moving,defective,and obsolete items included in inventory are properly identified?

Accepted Answer

A) Test the computation of standard overhead rates. 
B) Tour the manufacturing plant or production facility. 
C) Compare inventory balances to anticipated sales volume. 
D) Review inventory experience and trends.

Question 17

A "bill and hold" scheme is most likely to include:

Accepted Answer

A) Shipment of items to a customer beyond what the customer has ordered. 
B) Recording as sales items that the company retains as of year-end. 
C) Billing of items that are held by customers for future revenue production purposes. 
D) Selling items at substantial discounts near year-end.

Question 18

Which one of the following procedures would not be appropriate for the auditors in discharging their responsibilities concerning the client's physical inventories?

Accepted Answer

A) Confirmation of goods in the hands of public warehouses. 
B) Supervising the taking of the annual physical inventory. 
C) Carrying out physical inventory procedures at an interim date. 
D) Obtaining written representation from the client as to the existence, quality, and dollar amount of the inventory.

Question 19

Which of the following is not a part of the auditors' responsibility when a client's count of its inventory?

Accepted Answer

A) Evaluate condition of inventory. 
B) Determine which counts they will make and which counts the client will make. 
C) Observe compliance with management's instructions for the count.. 
D) Make some test counts.

Exam 12: Inventories and Cost of Goods Sold

Which of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse?

An auditor performs a test to determine whether all merchandise for which the client was billed was received.The population for this test consists of all:

Which of the following is an auditor least likely to consider a departure from U.S.generally accepted accounting principles?

The receiving department should accept only goods for which there is an approved purchase order on hand.

The use of a "blind" purchase order is designed to prevent errors by the:

To measure how effectively a client employs its assets,an auditor calculates inventory turnover by dividing the average inventory into:

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

The proper cutoff of inventories is best achieved when the client uses prenumbered purchase orders.

The client's physical count of inventories is lower than the inventory quantities in the perpetual records.This could be the result of a failure to record:

To best ascertain that a company has properly included merchandise that it owns in its ending inventory,the auditors should review and test the:

Auditors should not review the client's planning of the physical inventory.

Which of the following is least likely to be accurate statement concerning characteristics of an audit?

In auditing a manufacturing entity,which of the following procedures would an auditor least likely perform to determine whether slow-moving,defective,and obsolete items included in inventory are properly identified?

A "bill and hold" scheme is most likely to include:

Which one of the following procedures would not be appropriate for the auditors in discharging their responsibilities concerning the client's physical inventories?

Which of the following is not a part of the auditors' responsibility when a client's count of its inventory?