Financial Audit 2 - 18A3 - Audit on Inventory (II)

Which of the following control procedures would most likely be used to maintain accurate perpetual inventory records?

• Periodic independent comparison of records with goods on hand.

• Periodic independent reconciliation of control and subsidiary records.

• Independent storeroom count of goods received.

• Independent matching of purchase orders, receiving reports, and vendors’ invoices.

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

• issue a qualified audit report.

• conduct expanded observation tests of physical inventory.

• hire a specialist to assist the auditor.

• withdraw from the engagement.

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.

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

• The cycle basis is used for physical counts.

• The storekeeper is responsible for maintenance of perpetual inventory records.

When auditing inventory transfers, auditors first need to understand the client’s (a)   for recording transfers before they can perform relevant tests.

The extent and (a)   of an auditor’s physical examination of inventory is significantly influenced by the adequacy of the client’s perpetual inventory records.