Question 1

Most of the audit testing of the storage of finished goods as well as the shipment of merchandise takes place during the testing of the:

Accepted Answer

A)  sales and collection cycle. 
B)  payroll and personnel cycle. 
C)  acquisitions and payments cycle. 
D)  inventory and warehousing cycle.

Question 2

The auditing procedures generally used for the physical observation of inventory and the pricing and compilation of inventory are:

Accepted Answer

A)  analytical procedures and tests of transactions. 
B)  analytical procedures and tests of details of balances. 
C)  analytical procedures and control tests. 
D)  tests of transactions and tests of details of balances.

Question 3

A major difficulty in the verification of inventory cost records for the purpose of inventory valuation is in determining the reasonableness of:

Accepted Answer

A)  direct labor's hourly rate. 
B)  raw materials per unit cost. 
C)  cost allocations. 
D)  number of direct labor hours applied.

Question 4

Which department within a manufacturing company is often responsible for the review of production and scrap reports?

Accepted Answer

A)  Purchasing 
B)  Accounts Payable 
C)  Accounting 
D)  Production

Question 5

What are the auditor's primary concerns in verifying the transfer of inventory from one location to another?

Accepted Answer

The answer of What are the auditor's primary concerns in...

Question 6

In performing audit tests of the client's cost accounting system, the auditor is primarily concerned with which of the following?

Accepted Answer

A)  System is functioning properly in providing costing and pricing information for management. 
B)  Costs have been properly assigned to finished goods, work-in-process, and cost of goods sold. 
C)  Inventory counts agree with the client's accounting records. 
D)  The client's cost accounting system is designed on the basis on acceptable cost accounting systems.

Question 7

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 8

When there are no perpetual inventory files and inventory is material:

Accepted Answer

A)  an audit cannot be performed, so the auditor must issue a disclaimer. 
B)  a physical inventory should be taken by the client near year-end. 
C)  the auditor will have to perform the inventory count and determine valuation. 
D)  the auditor need not observe inventory counts but must do test counts.

Question 9

Perpetual inventory records should be maintained by persons having access to inventory.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Receipt of ordered materials by the receiving department will generate the completion of a form called the:

Accepted Answer

A)  bill of lading. 
B)  receiving report. 
C)  materials requisition. 
D)  inventory acquisition summary.

Question 12

When performing price tests for purchased inventory, the auditor would not be concerned with the most recent vendors' invoices if the client uses the FIFO valuation method.

Accepted Answer

A) True 
 B)False

Question 13

Auditing standards require that auditors satisfy themselves about the effectiveness of the client's method's of counting inventory and the reliance they can place on the client's representations about the quantities and physical condition of the inventories. To meet this requirement auditors must perform 4 activities. List below.

Accepted Answer

The answer of Auditing standards require that auditors satisfy themselves...

Question 14

When a physical count of inventory is performed at an interim date, the auditor observes it at that time and tests the perpetual records for transactions:

Accepted Answer

A)  throughout the year. 
B)  which are a representative sample of the period under audit. 
C)  from the date of the count to year-end. 
D)  from the date of the count to the end of the audit field work.

Question 15

Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.

Accepted Answer

The answer of Discuss the auditor's responsibilities for inventory maintained...

Exam 21: Audit of the Inventory and Warehousing Cycle

Most of the audit testing of the storage of finished goods as well as the shipment of merchandise takes place during the testing of the:

The auditing procedures generally used for the physical observation of inventory and the pricing and compilation of inventory are:

A major difficulty in the verification of inventory cost records for the purpose of inventory valuation is in determining the reasonableness of:

Which department within a manufacturing company is often responsible for the review of production and scrap reports?

What are the auditor's primary concerns in verifying the transfer of inventory from one location to another?

In performing audit tests of the client's cost accounting system, the auditor is primarily concerned with which of the following?

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

When there are no perpetual inventory files and inventory is material:

Perpetual inventory records should be maintained by persons having access to inventory.

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.

Receipt of ordered materials by the receiving department will generate the completion of a form called the:

When performing price tests for purchased inventory, the auditor would not be concerned with the most recent vendors' invoices if the client uses the FIFO valuation method.

When a physical count of inventory is performed at an interim date, the auditor observes it at that time and tests the perpetual records for transactions:

Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.