Question 1

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

Accepted Answer

A)  has paid for the merchandise.
B)  has physical possession of the merchandise.
C)  holds legal title to the merchandise.
D)  holds the shipping documents for the merchandise issued in the company's name.

Question 2

Tracing costs used to price inventory to vendors' invoices test which of the following assertions?

Accepted Answer

A)  Occurrence.
B)  Cutoff.
C)  Accuracy.
D)  Classification.

Question 3

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 4

A high inventory turnover ratio normally indicates inefficient inventory policies.

Accepted Answer

A) True 
 B)False

Question 5

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of:

Accepted Answer

A)  valuation.
B)  rights and obligations.
C)  existence.
D)  completeness.

Question 6

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the entity's physical inventories?

Accepted Answer

A)  Confirmation of goods in the hands of public warehouses.
B)  Supervising the annual physical inventory count.
C)  Carrying out physical inventory procedures at an interim date.
D)  Obtaining written representation from the entity as to the existence, quality, and dollar amount of the inventory.

Question 7

When the entity'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 8

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Accepted Answer

A)  Independent storeroom count of goods received.
B)  Periodic independent reconciliation of control and subsidiary records.
C)  Periodic independent comparison of records with goods on hands.
D)  Independent matching of purchase orders, receiving reports, and vendors' invoices.

Question 9

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:

Accepted Answer

A)  sale in the subsequent period.
B)  purchase in the current period.
C)  sale in the current period.
D)  purchase return in the subsequent period.

Question 10

The auditor tests 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 11

Obsolete inventory should be written down to its current market value.

Accepted Answer

A) True 
 B)False

Question 12

For several years, an entity's physical inventory count has been lower than what was shown on the books at the time of the count so that downward adjustments to the inventory account were required. Contributing to the inventory problem could be weaknesses in internal controls that led to the failure to record some:

Accepted Answer

A)  purchases returned to vendors.
B)  sales returns received.
C)  sales discounts allowed.
D)  cash purchases.

Question 13

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably:

Accepted Answer

A)  want the entity to schedule the physical inventory count at the end of the year.
B)  insist that the entity perform physical counts of inventory items several times during the year.
C)  increase the extent of tests for unrecorded liabilities at the end of the year.
D)  have to disclaim an opinion on the income statement for that year.

Question 14

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 15

Sale of finished goods is a part of the inventory management process.

Accepted Answer

A) True 
 B)False

Question 16

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 17

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

Accepted Answer

A)  Verifying that inventory counted is owned by the entity.
B)  Verifying that the entity has used proper inventory pricing.
C)  Ascertaining the physical quantities of inventory on hand.
D)  Verifying that all inventory owned by the entity is on hand at the time of the count.

Question 18

An approved purchase requisition form authorizes shipment of goods to customers.

Accepted Answer

A) True 
 B)False

Question 19

For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?

Accepted Answer

A)  Materials requisitions.
B)  Production schedules.
C)  Receiving documents.
D)  Purchase orders.

Question 20

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.

Exam 13: Auditing the Inventory Management Process

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the entity's physical inventories?

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

Correct Answer
verified

For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?

Correct Answer
verified

A high inventory turnover ratio normally indicates inefficient inventory policies.

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

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

Correct Answer
verified

Obsolete inventory should be written down to its current market value.

Correct Answer
verified

An approved purchase requisition form authorizes shipment of goods to customers.

Correct Answer
verified

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of:

Correct Answer
verified

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably:

Correct Answer
verified

The auditor tests the quantity of materials charged to work in process by tracing these quantities to:

Correct Answer
verified

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

Correct Answer
verified

Sale of finished goods is a part of the inventory management process.

Correct Answer
verified

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

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

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Correct Answer
verified

When the entity'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

Tracing costs used to price inventory to vendors' invoices test which of the following assertions?

Correct Answer
verified

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:

Correct Answer
verified

Exam 13: Auditing the Inventory Management Process

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the entity's physical inventories?

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 AnswerverifiedShow Answer

For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?

Correct AnswerverifiedShow Answer

A high inventory turnover ratio normally indicates inefficient inventory policies.

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

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

Correct AnswerverifiedShow Answer

Obsolete inventory should be written down to its current market value.

Correct AnswerverifiedShow Answer

An approved purchase requisition form authorizes shipment of goods to customers.

Correct AnswerverifiedShow Answer

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of:

Correct AnswerverifiedShow Answer

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably:

Correct AnswerverifiedShow Answer

The auditor tests the quantity of materials charged to work in process by tracing these quantities to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Sale of finished goods is a part of the inventory management process.

Correct AnswerverifiedShow 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

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

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Correct AnswerverifiedShow Answer

When the entity'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

Tracing costs used to price inventory to vendors' invoices test which of the following assertions?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Correct Answer
verified

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

Correct Answer
verified

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Correct Answer
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Correct Answer
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