Question 1

You are auditing the inventory account and are concerned about the possibility of an inventory overstatement.What is the best audit procedure to detect damaged inventory?

Accepted Answer

A)   Observe the condition of inventory during the client's physical count.
B)   Compare the condition of inventory from the previous year's count to the current year.
C)   Compare inventory turnover from the previous year's inventory to the current year's inventory.
D)   Reconcile the inventory counts to the cost accounting records.

Question 2

In most manufacturing companies,the inventory and warehousing cycle begins with the:

Accepted Answer

A)   receipt of a customer's order.
B)   completion of production of a customer's order.
C)   initiation of production of a customer's order.
D)   acquisition of raw materials for production of an order.

Question 3

Auditing standards recommend that auditors observe physical inventory counts by the client.

Accepted Answer

A) True 
 B)False

Question 4

The main difference between job order and process costing systems is that:

Accepted Answer

A)   one accumulates costs by materials issued and the other by labor incurred.
B)   one accumulates costs by individual jobs and the other by particular processes.
C)   one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process.
D)   one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence.

Question 5

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of:

Accepted Answer

A)   audit efficiency.
B)   accuracy of the perpetual inventory master files.
C)   client convenience.
D)   audit staff availability.

Question 6

The major concerns in performing inventory valuation tests are compliance with GAAP and consistency with prior years.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

•Inventory is often the largest account ...

Question 8

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

Accepted Answer

A)   
B)   
C)   
D)

Question 9

In addition to performing analytical procedures that examine the relationship of inventory account balances with related financial statement accounts,auditor's will often use non-financial measures in determining the reasonableness of inventory balances.List below at least two non-financial measures that may be useful to auditors.

Accepted Answer

Size and weight of i...

Question 10

Controls which provide a means of ensuring that the physical counts are properly summarized,priced at the same amount as the unit records,correctly extended and totaled,and included in the general ledger at the proper amount are known as:

Accepted Answer

A)   standard cost controls.
B)   pricing internal controls.
C)   compilation internal controls.
D)   count quantity internal controls.

Question 11

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:
•Phy...

Question 12

While separate perpetual inventory records are normally kept for raw materials and finished goods,most companies do not use perpetual records for work-in-process.

Accepted Answer

A) True 
 B)False

Question 13

When auditing manufacturing overhead costs assigned to inventory,auditors should keep in mind that:

Accepted Answer

A)   GAAP has strict procedures that must be followed when assigning overhead to work-in-process inventory.
B)   overhead costs must be allocated to raw materials, work-in-process, and finished goods inventory.
C)   management typically allocates overhead using total direct labor dollars as the basis for the allocation.
D)   determining the reasonableness of the allocation method is relatively simple for work-in-process inventory.

Question 14

A major source of cutoff information for sales and purchases of inventory is:

Accepted Answer

A)   confirmations from outside parties.
B)   the test of details of balances.
C)   physical observation.
D)   the performance of analytical procedures.

Question 15

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

Accepted Answer

A) True 
 B)False

Question 16

The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the:

Accepted Answer

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

Question 17

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.

Accepted Answer

A)   cutoff
B)   accuracy
C)   nature
D)   extent

Question 18

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 19

A well-designed computerized system of perpetual inventory master files includes information about the:

Accepted Answer

A)   units of inventory purchased, sold, and on hand.
B)   unit costs of inventory purchased, sold, and on hand.
C)   units of raw materials, work-in-process, and finished goods.
D)   units and unit costs of inventory purchased, sold, and on hand.

Question 20

If the perpetual inventory master files show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded:

Accepted Answer

A)   sales.
B)   sales discounts.
C)   purchases.
D)   purchase discounts.

Exam 20: Audit of the Inventory and Warehousing Cycle

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

Correct Answer
verified
•Inventory is often the largest account ...
View Answer

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

Correct Answer
verified

If the perpetual inventory master files show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded:

Correct Answer
verified

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

Correct Answer
verified
The auditor is most concerned with:
•Phy...
View Answer

Correct Answer
verified
Size and weight of i...
View Answer

In most manufacturing companies,the inventory and warehousing cycle begins with the:

Correct Answer
verified

A major source of cutoff information for sales and purchases of inventory is:

Correct Answer
verified

When auditing manufacturing overhead costs assigned to inventory,auditors should keep in mind that:

Correct Answer
verified

Auditing standards recommend that auditors observe physical inventory counts by the client.

Correct Answer
verified

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.

Correct Answer
verified

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

Correct Answer
verified

The main difference between job order and process costing systems is that:

Correct Answer
verified

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of:

Correct Answer
verified

Controls which provide a means of ensuring that the physical counts are properly summarized,priced at the same amount as the unit records,correctly extended and totaled,and included in the general ledger at the proper amount are known as:

Correct Answer
verified

The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the:

Correct Answer
verified

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

Correct Answer
verified

The major concerns in performing inventory valuation tests are compliance with GAAP and consistency with prior years.

Correct Answer
verified

A well-designed computerized system of perpetual inventory master files includes information about the:

Correct Answer
verified

You are auditing the inventory account and are concerned about the possibility of an inventory overstatement.What is the best audit procedure to detect damaged inventory?

Correct Answer
verified

While separate perpetual inventory records are normally kept for raw materials and finished goods,most companies do not use perpetual records for work-in-process.

Correct Answer
verified

Exam 20: Audit of the Inventory and Warehousing Cycle

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

Correct Answerverified•Inventory is often the largest account ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If the perpetual inventory master files show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe auditor is most concerned with:•Phy...View AnswerShow Answer

Correct AnswerverifiedSize and weight of i...View AnswerShow Answer

In most manufacturing companies,the inventory and warehousing cycle begins with the:

Correct AnswerverifiedShow Answer

A major source of cutoff information for sales and purchases of inventory is:

Correct AnswerverifiedShow Answer

When auditing manufacturing overhead costs assigned to inventory,auditors should keep in mind that:

Correct AnswerverifiedShow Answer

Auditing standards recommend that auditors observe physical inventory counts by the client.

Correct AnswerverifiedShow Answer

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The main difference between job order and process costing systems is that:

Correct AnswerverifiedShow Answer

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of:

Correct AnswerverifiedShow Answer

Controls which provide a means of ensuring that the physical counts are properly summarized,priced at the same amount as the unit records,correctly extended and totaled,and included in the general ledger at the proper amount are known as:

Correct AnswerverifiedShow Answer

The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the:

Correct AnswerverifiedShow Answer

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

Correct AnswerverifiedShow Answer

The major concerns in performing inventory valuation tests are compliance with GAAP and consistency with prior years.

Correct AnswerverifiedShow Answer

A well-designed computerized system of perpetual inventory master files includes information about the:

Correct AnswerverifiedShow Answer

You are auditing the inventory account and are concerned about the possibility of an inventory overstatement.What is the best audit procedure to detect damaged inventory?

Correct AnswerverifiedShow Answer

While separate perpetual inventory records are normally kept for raw materials and finished goods,most companies do not use perpetual records for work-in-process.

Correct AnswerverifiedShow Answer

Correct Answer
verified
•Inventory is often the largest account ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The auditor is most concerned with:
•Phy...
View Answer

Correct Answer
verified
Size and weight of i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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