Question 1

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?

Accepted Answer

A)   Obsolete inventory.
B)   New product line where sales exceed production.
C)   Manufacturing overhead was not allocated to the production process.
D)   Manufacturing salaries were recorded as administrative expenses.

Question 2

An entity's physical count of inventories was higher than the inventory quantities per the perpetual records.This situation could be the result of the failure to record

Accepted Answer

A)   sales.
B)   sales discounts.
C)   purchases.
D)   purchase returns.

Question 3

The element of the audit planning process most likely to be agreed upon with the entity before implementation of the audit strategy is the determination of the

Accepted Answer

A)   evidence to be gathered to provide a sufficient basis for the auditor's opinion.
B)   procedures to be undertaken to discover litigation, claims, and assessments.
C)   pending legal matters to be included in the inquiry of the entity's attorney.
D)   timing of inventory observation procedures to be performed.

Question 4

If the perpetual inventory records show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded

Accepted Answer

A)   sales.
B)   sales discounts.
C)   purchases.
D)   purchase discounts.

Question 5

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

Accepted Answer

A)   Compare the physical quantities of slow-moving items with corresponding quantities of the prior year.
B)   Observe the condition of merchandise and raw materials during the entity's physical inventory count.
C)   Review the management's inventory representation letter for accuracy.
D)   Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.

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

List five things an auditor should do during the observation of the physical count of inventory.

Accepted Answer

• Ensure that no production is scheduled...

Question 8

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

Accepted Answer

A)   Purchase requisitions initiated by authorized personnel.
B)   Recorded inventory transactions actually happened.
C)   Inventory properly accumulated from journals and ledgers.
D)   All inventory is recorded.

Question 9

In the audit of inventory,the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

Accepted Answer

A) True 
 B)False

Question 10

The accuracy of perpetual inventory records may be established,in part,by comparing perpetual inventory records with

Accepted Answer

A)   purchase requisitions.
B)   receiving reports.
C)   purchase orders.
D)   vendor payments.

Question 11

The three components that make up the cost of producing a product include materials,direct labor,and indirect labor.

Accepted Answer

A) True 
 B)False

Question 12

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

Accepted Answer

A) True 
 B)False

Question 13

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 14

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances,an auditor most likely would

Accepted Answer

A)   review the entity's description of inventory policies and procedures.
B)   perform test counts of inventory during the entity's physical count.
C)   analyze inventory turnover statistics to identify slow-moving and obsolete items.
D)   analyze monthly production reports to identify variances and unusual transactions.

Question 15

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

Accepted Answer

A)   sales.
B)   receivables.
C)   cost of Goods Sold.
D)   prepaid Expenses.

Question 16

We know from cost accounting that there are three components that make up the standard costs for inventory.Explain how an auditor could test each of these components for a company that manufactures pillows.

Accepted Answer

Materials - The auditor could obtain a l...

Question 17

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

Accepted Answer

A) True 
 B)False

Question 18

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 19

A receiving report records the shipment of goods to customers.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 13: Auditing the Inventory Management Process

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

Correct Answer
verified

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

Correct Answer
verified

If the perpetual inventory records show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded

Correct Answer
verified

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?

Correct Answer
verified

The accuracy of perpetual inventory records may be established,in part,by comparing perpetual inventory records with

Correct Answer
verified

The three components that make up the cost of producing a product include materials,direct labor,and indirect labor.

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

A receiving report records the shipment of goods to customers.

Correct Answer
verified

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

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

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances,an auditor most likely would

Correct Answer
verified

The element of the audit planning process most likely to be agreed upon with the entity before implementation of the audit strategy is the determination of the

Correct Answer
verified

We know from cost accounting that there are three components that make up the standard costs for inventory.Explain how an auditor could test each of these components for a company that manufactures pillows.

Correct Answer
verified
Materials - The auditor could obtain a l...
View Answer

An entity's physical count of inventories was higher than the inventory quantities per the perpetual records.This situation could be the result of the failure to record

Correct Answer
verified

Correct Answer
verified

In the audit of inventory,the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

Correct Answer
verified

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

Correct Answer
verified

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

Correct Answer
verified

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

Correct Answer
verified

List five things an auditor should do during the observation of the physical count of inventory.

Correct Answer
verified
• Ensure that no production is scheduled...
View Answer

Exam 13: Auditing the Inventory Management Process

Production personnel should ordinarily be responsible for maintaining perpetual inventory records.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the perpetual inventory records show lower quantities of inventory than the physical count,an explanation of the difference might be unrecorded

Correct AnswerverifiedShow Answer

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?

Correct AnswerverifiedShow Answer

The accuracy of perpetual inventory records may be established,in part,by comparing perpetual inventory records with

Correct AnswerverifiedShow Answer

The three components that make up the cost of producing a product include materials,direct labor,and indirect labor.

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

A receiving report records the shipment of goods to customers.

Correct AnswerverifiedShow Answer

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

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

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances,an auditor most likely would

Correct AnswerverifiedShow Answer

The element of the audit planning process most likely to be agreed upon with the entity before implementation of the audit strategy is the determination of the

Correct AnswerverifiedShow Answer

We know from cost accounting that there are three components that make up the standard costs for inventory.Explain how an auditor could test each of these components for a company that manufactures pillows.

Correct AnswerverifiedMaterials - The auditor could obtain a l...View AnswerShow Answer

An entity's physical count of inventories was higher than the inventory quantities per the perpetual records.This situation could be the result of the failure to record

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the audit of inventory,the entity is responsible for actually making and recording the count of physical inventory; the auditor's responsibility is to evaluate and observe the entity's procedures and draw conclusions about the adequacy of the physical inventory.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

List five things an auditor should do during the observation of the physical count of inventory.

Correct Answerverified• Ensure that no production is scheduled...View AnswerShow Answer

Correct Answer
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Materials - The auditor could obtain a l...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified
• Ensure that no production is scheduled...
View Answer