Production cycle

Which of the following methods for determining inventory cost is not allowed by GAAP?

• Average cost

• FIFO

• LIFO

• Standard cost

Which cycle is not directly linked to the production cycle?

• Acquisition and expenditure cycle

• Payroll cycle

• Revenue and collection cycle

• Finance and investment cycle

To determine the client’s planned amount and timing of production of a product, the auditor reviews the

• Sales forecast

• Inventory reports

• Production plan

• Purchases journal

An auditor reviews job cost sheets to test which transaction assertion?

• Occurrence

• Completeness

• Accuracy

• Classification

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?

• Supplies of relatively little value are expensed when purchased.

• The cycle basis is used for physical inventory counts

• The warehouse manager is responsible for maintenance of perpetual inventory records

• Perpetual inventory records are maintained only for items of significant value

To make a year-to-year comparison of inventory turnover most meaningful, the auditor performs the analysis

• For the company as a whole

• By division

• By product

• All of the above.

Which of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?

• Maintain a perpetual inventory of only the more valuable items with frequent periodic verification of the accuracy of the perpetual inventory record.

• Have an independent accounting firm prepare an internal control report on the effectiveness of the controls over inventory.

• Have separate warehouse space for the more valuable items with frequent periodic physical inventory counts and comparison to perpetual inventory records.

• Require a manager’s signature for the removal of any inventory item with a value of more than $50.

An auditor usually traces the details of the test counts made during the observation of physical inventory counts to a final inventory compilation. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are

• Owned by the client

• Not obsolete

• Physically present at the time of the preparation of the final inventory schedule

• Included in the final inventory schedule.

A retailer’s physical count of inventory was higher than that shown by the perpetual records. Which of the following could explain the difference?

• Inventory items had been counted but the tags placed on the items had not been taken off and added to the inventory accumulation sheets.

• Credit memos for several items returned by customers had not been recorded.

• No journal entry had been made on the retailer’s books for several items returned to its suppliers.

• An item purchased FOB shipping point had not arrived at the date of the inventory count and had not been reflected in the perpetual records.

  LO

From the auditors’ point of view, inventory counts are more acceptable prior to the year-end when

• Internal control is weak.

• Accurate perpetual inventory records are maintained.

• Inventory is slow moving.

• Significant amounts of inventory are held on a consignment basis.