theories on audit of production cycle

which of the following is not one of the independent auditor's objectives regarding the audit of inventories?

• verifying that the client has used proper inventory pricing

• verifying that inventory counted is owned by the client.

• verifying that all inventory owned by the client is on hand at the time of the count.

• ascertaining the physical quantities of inventory on hand.

To ascertain whether inventories included in the statement of financial position physically exists, a CPA will ordinarily:

• obtain confirmation of pledged inventories

• observe physical inventory counts

• test client's shipping cutoff procedures.

• perform an analytic review of the relationship of the inventory balance to recent sales

a client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk is high an auditor will probably

• increase the extent of tests of controls relevant to the inventory cycle

• request the client to schedule the physical inventory count at the end of the year

• insist that the client perform physical counts of inventory items several times during the year

• apply gross profit tests to ascertain the reasonableness of the physical counts.

the procedure involve in the attendance of physical inventory counting

• serve as risk assessment procedures

• serve as test of controls

• serve as substantive procedures

• may serve as test of controls or substantive procedures depending on the auditor's risk assessment, planned approach and the specific procedures carried out.

when inventory is material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding its existence and condition by attendance at physical inventory counting unless impracticable. Where attendance is impracticable, due to factors such as the nature and location of the inventory, the auditor should:

• take or observe some physical counts on an alternative date and, when necessary, perform tests of intervening transactions.

• consider whether alternative procedures provide sufficient appropriate audit evidence of existence and condition to conclude that the auditor need not make reference to a scope limitation

• issue qualified or disclaimer of opinion

• issue qualified or adverse opinion

in which of the following cases is attendance at physical inventory counting impracticable?

• where inventory is held in a location that may pose threats to the safety of the auditor

• where the auditor will be inconvenienced because of the difficulty, time and cost involved in doing the procedures.

• both a and b

• neither a and b

Which of the following provide sufficient appropriate audit evidence about the existence and condition of inventory if attendance at physical inventory is impracticable?

• inspection of documentation of the subsequent sale of specific inventory items purchased prior to the physical inventory counting.

• inspection of documentation of the subsequent sale of specific inventory items purchased after the physical counting

• both a and b

• neither a and

When inventory under the custody and control of a third party is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of the inventory by

• requesting confirmation from the third party as to the quantities and condition of inventory held on behalf of the entity

• performing inspection or other audit procedures appropriate in the circumstances

• performing one or both of the procedures in (a) and (b)

• relying only on the written representations made by the client's management

an auditor selected items for test counts while observing a client's physical inventory. The auditor then traced test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's assertion of

• completeness

• valuation

• rights and obligations

• existence or occurrence

The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the following could explain the difference?

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

• an item purchased "FOB Shipping point" had not arrived at the date of the inventory count and had not reflected in the perpetual records.

• no journal entry had been made on the retailer's books for several items returned to its suppliers

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