Question 1

Explain why the audit of work in process and finished goods inventory is generally more complex than the audit of purchased inventory.

Accepted Answer

The need to verify the cost of raw materials,direct labor,and manufacturing overhead in pricing work in process and finished goods has the effect of making the audit of work in process and finished goods inventory more complex than the audit of purchased inventory.

Question 2

Auditors usually test cost accounting records as part of the

Accepted Answer

A)  acquisition tests.
B)  payroll tests.
C)  sales tests.
D)  All of the above are correct.

Question 3

Management typically allocates overhead using total raw materials as the basis for the allocation.

Accepted Answer

A) True 
 B)False

Question 4

A major source of cutoff information for sales and purchases of inventory is

Accepted Answer

A)  confirmations from outside parties.
B)  the test of details of balances.
C)  physical observation.
D)  the performance of analytical procedures.

Question 5

One of the auditor's primary concerns in verifying the transfer of inventory from one location to another is that

Accepted Answer

A)  recorded transfers exist.
B)  all actual transfers are recorded.
C)  the quantity,date,and description of all recorded transfers are accurate.
D)  all of the above

Question 6

Which of the following is an accurate statement regarding inventory and risk?

Accepted Answer

A)  Inventory with a high business risk includes products with potential obsolescence.
B)  Auditors often have a greater concern for misstatements when inventory is stored in one warehouse.
C)  Inherent risk is generally set at low for manufacturing companies.
D)  Performance materiality for inventory is determined before assessing client business risk.

Question 7

The adequacy of internal controls over the physical count of inventory is one of the key determinants of the amount of time needed to test inventory.

Accepted Answer

A) True 
 B)False

Question 8

To best ascertain that a company has properly included merchandise that it owns in its ending inventory,the auditor should review and test the

Accepted Answer

A)  terms of the open purchase orders.
B)  purchase cutoff procedures.
C)  contractual commitments made by the purchasing department.
D)  purchase invoices received on or around year-end.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

The audit of the inventory and warehousing cycle consists of five parts.State the five parts and,for each part,identify the cycle in which that part is tested by the auditor.

Accepted Answer

The five parts are:
•Acquire and record ...

Question 11

What are the auditor's primary concerns in verifying the transfer of inventory from one location to another?

Accepted Answer

1. Recorded transfers exist.
2...

Question 12

Cost of goods sold is generally a residual of beginning inventory less acquisitions plus ending inventory.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is an accurate statement regarding perpetual inventory master files?

Accepted Answer

A)  When perpetual inventory master files are accurate,auditors can test the physical inventory after the balance sheet date.
B)  It is a difficult procedure for the auditor to test the accuracy of the perpetual inventory master files.
C)  Auditors test the perpetual records for reductions in finished goods for sale as part of the sales and collection cycle.
D)  All of the above are accurate statements.

Question 14

When the client's perpetual inventory master files are inadequate,the auditor will probably choose to test the physical inventory prior to the balance sheet date.

Accepted Answer

A) True 
 B)False

Question 15

Assume that the client's valuation of an inventory item is $10 per unit for 1,000 units,using first-in,first-out (FIFO) .If the most recent acquisition of inventory was for 600 units at $10 per unit and the immediately preceding acquisition was for 700 units at $9 per unit,the inventory item is in error and it is

Accepted Answer

A)  understated $400.
B)  understated $300.
C)  overstated $400.
D)  overstated $700.

Question 16

Which of the following is not a function within the inventory and warehousing cycle?

Accepted Answer

A)  process the goods
B)  store raw materials
C)  ship finished goods
D)  process invoices for shipped goods

Question 17

Auditors test the quantity of materials charged to work-in-process by tracing these quantities to

Accepted Answer

A)  cost ledgers.
B)  perpetual inventory records.
C)  receiving reports.
D)  material requisitions.

Question 18

In most manufacturing companies,the inventory and warehousing cycle begins with the

Accepted Answer

A)  receipt of a customer's order.
B)  completion of production of a customer's order.
C)  initiation of production of a customer's order.
D)  acquisition of raw materials for production. D

Question 19

Which of the following is an accurate statement regarding the audit of pricing and compilation of inventory?

Accepted Answer

A)  Inventory compilation tests include all of the tests of the client's unit prices to determine whether they are correct.
B)  The review for obsolete inventory should be performed by the accounting department.
C)  The most important internal control for accurate unit costs is external verification by an outside consultant.
D)  Inventory compilation internal controls are needed to ensure that the physical counts are correctly summarized and priced. D

Question 20

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of

Accepted Answer

A)  audit efficiency.
B)  accuracy of the perpetual inventory master files.
C)  client convenience.
D)  audit staff availability.

Exam 21: Audit of the Inventory and Warehousing Cycle

Explain why the audit of work in process and finished goods inventory is generally more complex than the audit of purchased inventory.

Correct Answer
verified
The need to verify the cost of raw materials,direct labor,and manufacturing overhead in pricing work in process and finished goods has the effect of making the audit of work in process and finished goods inventory more complex than the audit of purchased inventory.

Auditors usually test cost accounting records as part of the

Correct Answer
verified

Management typically allocates overhead using total raw materials as the basis for the allocation.

Correct Answer
verified

A major source of cutoff information for sales and purchases of inventory is

Correct Answer
verified

One of the auditor's primary concerns in verifying the transfer of inventory from one location to another is that

Correct Answer
verified

Which of the following is an accurate statement regarding inventory and risk?

Correct Answer
verified

The adequacy of internal controls over the physical count of inventory is one of the key determinants of the amount of time needed to test inventory.

Correct Answer
verified

To best ascertain that a company has properly included merchandise that it owns in its ending inventory,the auditor should review and test the

Correct Answer
verified

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

Correct Answer
verified

The audit of the inventory and warehousing cycle consists of five parts.State the five parts and,for each part,identify the cycle in which that part is tested by the auditor.

Correct Answer
verified
The five parts are:
•Acquire and record ...
View Answer

What are the auditor's primary concerns in verifying the transfer of inventory from one location to another?

Correct Answer
verified
1. Recorded transfers exist.
2...
View Answer

Cost of goods sold is generally a residual of beginning inventory less acquisitions plus ending inventory.

Correct Answer
verified

Which of the following is an accurate statement regarding perpetual inventory master files?

Correct Answer
verified

When the client's perpetual inventory master files are inadequate,the auditor will probably choose to test the physical inventory prior to the balance sheet date.

Correct Answer
verified

Correct Answer
verified

Which of the following is not a function within the inventory and warehousing cycle?

Correct Answer
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Auditors test the quantity of materials charged to work-in-process by tracing these quantities to

Correct Answer
verified

In most manufacturing companies,the inventory and warehousing cycle begins with the

Correct Answer
verified
D

Which of the following is an accurate statement regarding the audit of pricing and compilation of inventory?

Correct Answer
verified
D

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of

Correct Answer
verified

Exam 21: Audit of the Inventory and Warehousing Cycle

Explain why the audit of work in process and finished goods inventory is generally more complex than the audit of purchased inventory.

Correct AnswerverifiedThe need to verify the cost of raw materials,direct labor,and manufacturing overhead in pricing work in process and finished goods has the effect of making the audit of work in process and finished goods inventory more complex than the audit of purchased inventory.

Auditors usually test cost accounting records as part of the

Correct AnswerverifiedShow Answer

Management typically allocates overhead using total raw materials as the basis for the allocation.

Correct AnswerverifiedShow Answer

A major source of cutoff information for sales and purchases of inventory is

Correct AnswerverifiedShow Answer

One of the auditor's primary concerns in verifying the transfer of inventory from one location to another is that

Correct AnswerverifiedShow Answer

Which of the following is an accurate statement regarding inventory and risk?

Correct AnswerverifiedShow Answer

The adequacy of internal controls over the physical count of inventory is one of the key determinants of the amount of time needed to test inventory.

Correct AnswerverifiedShow Answer

To best ascertain that a company has properly included merchandise that it owns in its ending inventory,the auditor should review and test the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The audit of the inventory and warehousing cycle consists of five parts.State the five parts and,for each part,identify the cycle in which that part is tested by the auditor.

Correct AnswerverifiedThe five parts are:•Acquire and record ...View AnswerShow Answer

What are the auditor's primary concerns in verifying the transfer of inventory from one location to another?

Correct Answerverified1. Recorded transfers exist.2...View AnswerShow Answer

Cost of goods sold is generally a residual of beginning inventory less acquisitions plus ending inventory.

Correct AnswerverifiedShow Answer

Which of the following is an accurate statement regarding perpetual inventory master files?

Correct AnswerverifiedShow Answer

When the client's perpetual inventory master files are inadequate,the auditor will probably choose to test the physical inventory prior to the balance sheet date.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not a function within the inventory and warehousing cycle?

Correct AnswerverifiedShow Answer

Auditors test the quantity of materials charged to work-in-process by tracing these quantities to

Correct AnswerverifiedShow Answer

In most manufacturing companies,the inventory and warehousing cycle begins with the

Correct AnswerverifiedD

Which of the following is an accurate statement regarding the audit of pricing and compilation of inventory?

Correct AnswerverifiedD

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of

Correct AnswerverifiedShow Answer

Correct Answer
verified
The need to verify the cost of raw materials,direct labor,and manufacturing overhead in pricing work in process and finished goods has the effect of making the audit of work in process and finished goods inventory more complex than the audit of purchased inventory.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The five parts are:
•Acquire and record ...
View Answer

Correct Answer
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1. Recorded transfers exist.
2...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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D

Correct Answer
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