Question 1

To make a year-to-year comparison of inventory turnover most meaningful,the auditor will perform the analysis

Accepted Answer

The answer of To make a year-to-year comparison of inventory...

Question 2

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's balance assertions about

Accepted Answer

Inventory turnover rates provide evidence about the accuracy and valuation of inventory as they relate to the prices materials are being sold for and the cost of goods sold. Therefore, the most appropriate balance assertion to be supported by analyzing inventory turnover rates is accuracy and valuation.

Question 3

Which cycle is not directly linked to the production cycle?

Accepted Answer

The finance and investment cycle is not directly linked to the production cycle as it involves the management of financial resources and investments, which may not directly impact the production of goods or services. The other three cycles (acquisition and expenditure, payroll, and revenue and collection) are all directly linked to the production cycle as they involve the acquisition of resources, payment of employees, and collection of revenue related to the production of goods or services.

Question 4

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?

Accepted Answer

The warehouse manager being responsible for maintenance of perpetual inventory records is an internal control weakness because it violates the principle of segregation of duties. This principle requires that the responsibility for record-keeping and the physical custody of assets should be held by different individuals to reduce the risk of errors or fraud.

Question 5

A retailer's physical count of inventory was higher than that shown by the perpetual records.Which of the following could explain the difference?

Accepted Answer

The answer of A retailer's physical count of inventory was...

Question 6

An auditor reviews job cost sheets to test which transaction assertion?

Accepted Answer

Reviewing job cost sheets primarily tests the accuracy assertion, as it involves verifying that the amounts recorded for job costs are correct and appropriately reflect the actual costs incurred.

Question 7

When auditing inventories,an auditor would least likely verify that

Accepted Answer

The answer of When auditing inventories,an auditor would least likely...

Question 8

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

The answer of An auditor will usually trace the details...

Question 9

The auditor tests the quantity of materials charged to work-in-process by vouching these quantities to

Accepted Answer

The answer of The auditor tests the quantity of materials...

Question 10

To determine the client's planned amount and timing of production of a product,the auditor will review the

Accepted Answer

To determine the client's planned amount and timing of production, the auditor will review the production plan. This plan outlines the expected amount of units to be produced during a certain period, as well as the timing of production. The sales forecast will provide information on estimated sales, but not necessarily the timing or amount of production. Inventory reports and purchases journal will be useful in determining the amount of inventory on hand and inventory purchases, but not as helpful in determining the planned amount and timing of production.

Question 11

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

Accepted Answer

The best procedure would be to have separate warehouse space for the more valuable items with frequent periodic physical counts and comparison to perpetual inventory records. This would allow for better control and segregation of the more valuable items, reducing the risk of theft. Physical counts and comparisons to perpetual inventory records would also help detect any discrepancies and potential theft. The other options may not be as effective in preventing or detecting theft in this type of inventory.

Question 12

An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about

Accepted Answer

The answer of An auditor would vouch inventory on the...

Question 13

A client maintains perpetual inventory records in quantities and in dollars.If the assessed control risk is high,an auditor would probably

Accepted Answer

The answer of A client maintains perpetual inventory records in...

Question 14

When evaluating inventory controls,an auditor would be least likely to

Accepted Answer

When evaluating inventory controls, an auditor would most likely inspect documents, make inquiries, and observe procedures to determine whether the inventory is properly valued and reported in the financial statements. While policy and procedure manuals can provide helpful guidance, they are not as critical to the actual evaluation of inventory controls as the other methods mentioned. Therefore, considering policy and procedure manuals would be the least likely method used by an auditor when evaluating inventory controls.

Question 15

Your client counts inventory three months before the end of the fiscal year.Internal controls over inventory are excellent.Which procedure is not necessary for the inventory roll-forward?

Accepted Answer

Requesting the client to recount inventory at the end of the year is not necessary if internal controls over inventory are excellent and the inventory was already counted three months before the end of the fiscal year. The other procedures (A, B, C) help in verifying the accuracy of the inventory records during the roll-forward period.

Question 16

An auditor selected items for test counts while observing a client's physical inventory.The auditor then traced the test counts to the client's inventory listing.This procedure most likely obtained evidence concerning management's balance assertion of

Accepted Answer

The answer of An auditor selected items for test counts...

Question 17

Which of the following auditing procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?

Accepted Answer

Inspecting agreements to determine whether any inventory is pledged as collateral or subject to any liens would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories. This procedure would provide direct and specific evidence about any encumbrances on the inventory, whereas the other options provide only indirect or general evidence.

Question 18

Which of the following internal control activities most likely addresses the completeness assertion for inventory?

Accepted Answer

Prenumbering the receiving reports and periodically checking the numbering sequence is an internal control activity that helps ensure that all inventory received is properly recorded in the accounting system, thus addressing the completeness assertion. The other choices address different internal control objectives such as accuracy, segregation of duties, and existence.

Question 19

From the auditors' point of view,inventory counts are more acceptable prior to the year end when

Accepted Answer

Auditors prefer to conduct inventory counts when accurate perpetual inventory records are maintained because it increases the likelihood that the inventory count will be accurate and complete. If internal control is weak, inventory counts may still be necessary, but there is a greater risk that the counts may not be reliable. Slow moving inventory and consignment inventory do not necessarily impact the timing of inventory counts.

Question 20

When testing a company's cost accounting system,the auditor uses procedures that are primarily designed to determine that

Accepted Answer

The procedures used by the auditor for testing a company's cost accounting system are primarily designed to determine whether costs have been properly assigned to finished goods, work-in-process, and cost of goods sold. This is essential to ensure that the system reflects an accurate representation of the company's product/service costs and profitability. While physical inventories and quantities on hand are important elements, they are not the primary focus of the auditor's testing procedures. The auditor also needs to check that the system is in accordance with generally accepted accounting principles and is functioning as planned, however, this is not the primary purpose of the testing procedures.

Quiz 9: Production Cycle