Question 1

An inventory turnover analysis is useful to the auditor because it may detect:

Accepted Answer

A)  inadequacies in inventory pricing.
B)  methods of avoiding cyclical holding costs.
C)  the optimum automatic reorder points.
D)  the existence of obsolete merchandise.

Question 2

Key segregations of duties in the inventory management process include all of the following except separating:

Accepted Answer

A)  cost accounting from review of variance reports.
B)  inventory management from cost accounting.
C)  cost accounting from the general ledger function.
D)  supervision of physical inventory from inventory management.

Question 3

An auditor will usually trace the details of the test counts made during the observation of the physical inventory count to a final inventory schedule. 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:

Accepted Answer

A)  owned by the entity.
B)  not obsolete.
C)  physically present at the time of the preparation of the final inventory schedule.
D)  included in the final inventory schedule.

Question 4

When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that:

Accepted Answer

A)  quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand.
B)  physical inventories are in substantial agreement with book inventories.
C)  the system is in accordance with generally accepted accounting principles and is functioning as planned.
D)  costs have been properly assigned to work in process, finished goods, and cost of goods sold.

Question 5

A receiving report records the shipment of goods to customers.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  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.
B)  Credit memos for several items returned by customers had not been prepared.
C)  No journal entry had been made on the retailer's books for several items returned to its suppliers.
D)  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.

Question 7

Explain the importance of observing physical inventory during an audit.

Accepted Answer

Inventory is typically a large account o...

Question 8

In a manufacturing company, which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

Accepted Answer

A)  Testing the computation of standard overhead rates.
B)  Examining paid vendors' invoices.
C)  Reviewing direct labor rates.
D)  Obtaining confirmation of inventories pledged under loan agreements.

Question 9

Inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset.

Accepted Answer

A) True 
 B)False

Exam 13: Auditing the Inventory Management Process

Explain the importance of observing physical inventory during an audit.

Correct Answer
verified
Inventory is typically a large account o...
View Answer

Inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset.

Correct Answer
verified

Key segregations of duties in the inventory management process include all of the following except separating:

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that:

Correct Answer
verified

An inventory turnover analysis is useful to the auditor because it may detect:

Correct Answer
verified

In a manufacturing company, which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

Correct Answer
verified

A receiving report records the shipment of goods to customers.

Correct Answer
verified

Exam 13: Auditing the Inventory Management Process

Explain the importance of observing physical inventory during an audit.

Correct AnswerverifiedInventory is typically a large account o...View AnswerShow Answer

Inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset.

Correct AnswerverifiedShow Answer

Key segregations of duties in the inventory management process include all of the following except separating:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that:

Correct AnswerverifiedShow Answer

An inventory turnover analysis is useful to the auditor because it may detect:

Correct AnswerverifiedShow Answer

In a manufacturing company, which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?

Correct AnswerverifiedShow Answer

A receiving report records the shipment of goods to customers.

Correct AnswerverifiedShow Answer

Correct Answer
verified
Inventory is typically a large account o...
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
verified