Which of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

Testing the computation of standard overhead rates.

Examining paid vendors' invoices.

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory? (Days Outstanding or Days to Sell = 365/Inventory Turnover)

New product line where sales exceed production.

Manufacturing overhead was not allocated to the production process.

Manufacturing salaries were recorded as administrative expenses.

Key segregation of duties in the inventory management process includes all of the following except separating:

Cost accounting from review of variance reports.

Inventory management from cost accounting.

Cost accounting from the general ledger function.

Supervision of physical inventory from inventory management.

An auditor generally tests physical security controls over inventory by:

Test counts and cutoff procedures.

Examination and reconciliation.

If internal control over inventory is weak, what would the auditor most likely do?

Want the entity to schedule the physical inventory count at the end of the year.

Insist that the entity perform physical counts of inventory items several times during the year.

Increase the extent of tests for unrecorded liabilities at the end of the year.

Have to disclaim an opinion on the income statement for that year.

An inventory turnover analysis (Cost of Goods Sold/Average Inventory) is useful to an auditor because it may find:

the existence of obsolete merchandise.

inadequacies in inventory pricing.

methods of avoiding cyclical holding costs.

optimum automatic reorder points.

Which of the following is NOT an appropriate action for an auditor in carrying out their responsibilities concerning the entity's physical inventories?

Supervising the annual physical inventory count.

Confirmation of goods in the hands of public warehouses.

Carrying out physical inventory procedures at an interim date.

Obtaining written representation from the entity as to the existence, quality, and dollar amount of the inventory.

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

Observe the condition of merchandise and raw materials during the entity's physical inventory count.

Compare the physical quantities of slow-moving items with corresponding quantities of the prior year.

Review the management's inventory representation letter for accuracy.

Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.

What is the purpose of observing an entity's inventory held on consignment by others?

To test the assertion of existence.

To test the assertion of completeness.

To test the assertion of valuation.

To test the assertion of rights and obligations.

Which of the following steps cannot be performed by an auditor using a generalized audit software package?

Recalculating balances in inventory reports.

Analyzing data resulting from inventory.

Selecting sample items of inventory.

Auditors are most likely to ensure that no production activity is scheduled prior to:

completing the book to physical adjustment.

determining the amount of consigned inventory.

When obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, what would an auditor most likely do?

Review the entity's description of inventory policies and procedures.

Perform test counts of inventory during the entity's physical count.

Analyze inventory turnover statistics to identify slow-moving and obsolete items.

Analyze monthly production reports to identify variances and unusual transactions.

Which control activity would most likely be used to maintain accurate perpetual inventory records?

Periodic independent comparison of records with goods on hand.

Independent storeroom count of goods received.

Periodic independent reconciliation of control and subsidiary records.

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

Purchase cutoff activities should be designed to test that merchandise is included in the inventory of the entity company if the company:

holds legal title to the merchandise.

has physical possession of the merchandise.

holds the shipping documents for the merchandise issued in the company's name.

When outside firms of non-accountants are used to count, list, price, and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the auditor will ordinarily do which of the following?

Make or observe some physical counts of the inventory, recompute certain inventory calculations, and test certain inventory transactions.

Consider the report of the outside inventory firm to be an acceptable alternative procedure to the observation of physical inventories.

Increase the extent of work on the physical count of inventory.

Consider the reduced audit effort with respect to the physical count of inventory as a scope limitation.

hich of the following best describes the occurrence assertion for inventory?

Recorded inventory transactions actually happened.

Purchase requisitions initiated by authorized personnel.

Inventory properly accumulated from journals and ledgers.

The audit of year-end physical inventories should include steps to verify that the entity's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a:

purchase in the current period.

purchase return in the subsequent period.

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

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

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

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.

In an audit of inventories, an auditor would least likely verify that:

all inventory owned by the entity is on hand at the time of the count.

the entity has used proper inventory pricing.

the financial statement presentation of inventories is appropriate.

damaged goods & obsolete items have been properly accounted for.

To gain assurance that all inventory items in an entity's inventory listing schedule are valid, an auditor most likely would trace:

items listed in the inventory listing schedule to inventory tags and the count sheets.

inventory tags noted during the auditor's observation to items listed in the inventory listing schedule.

inventory tags noted during the auditor's observation to items listed in receiving reports and vendors' invoices.

items listed in receiving reports and vendors' invoices to the inventory listing schedule.

Which of the following is not one of the independent auditor's objectives regarding the examination of inventories?

Verifying that all inventory owned by the entity is on hand at the time of the count.

Verifying that inventory counted is owned by the entity.

Verifying that the entity has used proper inventory pricing.

Ascertaining the physical quantities of inventory on hand.

Which of the following is a question that the auditor would expect to find on the production process section of an internal control questionnaire?

Are all releases by storekeepers of raw materials from storage based on approved requisition documents?

Are vendors' invoices for raw materials approved for payment by an employee who is independent of the cash disbursements function?

Are signed checks for the purchase of raw materials mailed directly after signing without being returned to the person who authorized the invoice processing?

Are details of individual disbursements for raw materials balanced with the total to be posted to the appropriate general ledger account?

In order to efficiently establish the correctness of the accounts payable cutoff, an auditor will be most likely to:

coordinate cutoff tests with physical inventory observation.

compare cutoff reports with purchase orders.

compare vendors' invoices with vendors' statements.

coordinate mailing of confirmations with cutoff tests.

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

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

Have separate warehouse space for the more valuable items with sequentially numbered tags.

Have an independent CPA firm prepare a report on the effectiveness of internal control over inventory.

Require an authorized officer's signature on all requisitions for the more valuable items.

Independent internal verification of inventory occurs when employees who:

Compare records of goods on hand with physical quantities do not maintain the records or have custody of the inventory.

Are independent of issuing production orders update records from completed job cost sheets and production cost reports on a timely basis.

Obtain receipts for the transfer of completed work to finished goods prepare a completed production report.

Issue raw materials, obtain material requisitions for each issue, and prepare daily totals of materials issued.

A13 NN

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Failure to record inventory in the proper period can affect all of the following accounts except:

sales

receivables

cost of Goods Sold

prepaid Expenses

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following would likely provide assurance about a manufacturing entity's inventory valuation?

Vouching the raw materials' costs to vendors' invoices.

Obtaining confirmation of inventories pledged under loan agreements.

Reviewing shipping and receiving cutoff activities for inventories.

Tracing test counts to the entity's inventory listing.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the purpose of the audit procedure involving the observation of the physical inventory count?

To confirm that the inventory is valued at market price.

To provide evidence that items physically present were observed by the auditor at the time of the count.

To ensure that the inventory is sold within the fiscal year.

To verify that the inventory has been properly depreciated.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following should be observed by the auditor to be included in the final inventory schedule?

Items that are physically present at the time of the preparation of the final inventory schedule.

Items that are in transit during the inventory count.

Items that have been sold but not yet delivered.

Items that are obsolete and not for sale.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is an important characteristic of items that are included in the final inventory schedule?

They must be leased by the entity.

They must be owned by the entity.

They must be manufactured by the entity.

They must be on consignment.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is NOT a characteristic of items that should be included in the final inventory schedule?

Items that are not obsolete.

Items that are obsolete.

Items that are physically present at the time of the count.

Items that are owned by the entity.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the purpose of tracing information on a representative number of tags to the physical inventory sheets?

To ensure that the inventory sheets include untagged inventory items.

To obtain assurance that all inventory represented by an inventory tag is bona fide.

To verify that the final inventory is valued above cost.

To confirm that all inventory represented by an inventory tag is listed on the inventory sheets.

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A13 NN

Failure to record inventory in the proper period can affect all of the following accounts except:

Which of the following would likely provide assurance about a manufacturing entity's inventory valuation?

What is the purpose of the audit procedure involving the observation of the physical inventory count?

Which of the following should be observed by the auditor to be included in the final inventory schedule?

What is an important characteristic of items that are included in the final inventory schedule?

What is NOT a characteristic of items that should be included in the final inventory schedule?

What is the purpose of tracing information on a representative number of tags to the physical inventory sheets?

What should the inventory sheets NOT include?

An auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the entity's perpetual records. This situation could be the result of the entity's failure to record:

Which of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

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