Question 1

If the auditor was testing inventory pricing the audit objective being fulfilled would be
A) completeness.
B) rights and obligations.
C) existence.
D) accuracy, valuation, and allocation.

Accepted Answer

When testing inventory pricing, the audit objective being fulfilled is accuracy, valuation, and allocation. This objective ensures that the inventory is accurately valued and allocated within the financial statements, which includes testing whether the inventory is recorded at the appropriate cost and that any necessary adjustments for obsolescence or lower of cost or market are made. Options A, B, and C refer to other audit objectives - completeness, rights and obligations, and existence, respectively - that do not directly relate to inventory pricing.

Question 2

Ensuring that inventory transactions are recorded in the correct accounts is an example of
the completeness assertion.

Accepted Answer

Ensuring that inventory transactions are recorded in the correct accounts is related to the accuracy and classification assertions, not the completeness assertion. The completeness assertion concerns whether all transactions and accounts that should be presented in the financial statements are indeed included.

Question 3

Reviewing data pertaining to inventory quality relates primarily to the
A) occurrence assertion.
B) completeness assertion.
C) rights and obligations assertion.
D) accuracy, valuation, and allocation

Accepted Answer

Reviewing data pertaining to inventory quality primarily relates to the accuracy assertion (whether the inventory is recorded at the correct amount), valuation assertion (whether the inventory is valued at its correct amount) and the allocation assertion (whether the inventory balances are properly allocated to periods). These are all part of the "accuracy, valuation, and allocation" assertion.

Question 4

In tracing opening inventory balances to working papers for the previous year, the auditor
should make certain that any audit adjustments, agreed on in the previous year, were
recorded.

Accepted Answer

The auditor should ensure that any audit adjustments agreed upon in the previous year were recorded in order to ensure accurate opening inventory balances for the current year's audit.

Question 5

The key issue in auditing inventories is to ensure the inventories actually exist, are owned,
and are properly valued.

Accepted Answer

This statement is true. Auditing inventories involves verifying that the physical inventory matches the recorded amount, determining ownership of the inventory, and ensuring the inventory is valued correctly. These checks help prevent errors or fraud in the company's financial statements.

Question 6

Ensuring that additions and disposals of property, plant, and equipment before the period end are recorded in the current period and those after the period end are included in the next accounting period is an example of the classification assertion.

Accepted Answer

This is an example of the cutoff assertion, which ensures transactions and events are recorded in the correct accounting period.

Question 7

A capital asset sub-ledger details individual items of plant and equipment and records
the cost of each asset and of any additions or alterations, and the accumulated depreciation
charged against it.

Accepted Answer

A capital asset sub-ledger keeps track of each item of plant and equipment, including its cost, any additions or alterations, and the accumulated depreciation charged against it.

Question 8

The key issues in auditing property, plant, and equipment are ensuring that the property,
plant, and equipment actually exist, are owned, and are properly valued with adequate
provision for depreciation.

Accepted Answer

Auditing property, plant, and equipment involves verifying the existence, ownership, and proper valuation of these assets, which are key issues to ensure their accuracy and completeness in financial statements. Therefore, the statement is true.

Question 9

Specialized inventories may require the assistance of experts in determining either the
quantity (as in the case of aerial measurement of stockpiles) or value (as in the case of
antiques).

Accepted Answer

This statement is true. Specialized inventories may require expert assistance in determining the quantity or value of items. For example, measuring the quantity of large stockpiles may require aerial measurement techniques, while valuing antique items may require the expertise of antique appraisers.

Question 10

Which of the following is not a function of maintaining inventory records?
A) physically comparing inventory with inventory records
B) recording the movement of goods into inventory
C) ordering goods
D) recording the movement of goods from inventory

Accepted Answer

Maintaining inventory records involves keeping track of the movement of goods into and out of inventory, as well as physically comparing inventory with inventory records to ensure accuracy. However, ordering goods is a separate function that falls under inventory management but is not directly related to maintaining inventory records.

Question 11

As existence of property, plant, and equipment is the key audit assertion, the auditor
does not need to obtain evidence of sales, disposals, and trade-ins.

Accepted Answer

The assertion of existence of property, plant, and equipment does not negate the need for the auditor to obtain evidence of sales, disposals, and trade-ins. The auditor needs to ensure that any disposals or sales have been properly recorded in the financial statements, and that any proceeds or losses have been accurately recorded. Therefore, the auditor should obtain sufficient and appropriate evidence of these transactions.

Question 12

Close to the end of the reporting period, the auditor needs to consider the extent of test
counts relative to total inventory and needs to review the recorded differences between test counts and inventory records over the year as well as the explanations of those differences.

Accepted Answer

This statement is true. The auditor needs to consider the extent of test counts relative to total inventory and review the recorded differences between test counts and inventory records over the year as well as the explanations of those differences before completing the inventory audit.

Question 13

When costing manufactured inventory all of the following procedures are necessary except
A) determining the cost of materials entered into raw materials.
B) determining the cost of raw materials transferred to work in process.
C) recording costs of direct labour applied to work in process.
D) determine the cost of purchases.

Accepted Answer

While determining the cost of purchases is a necessary step in costing manufactured inventory, it is not the only necessary step. The other three options listed are also necessary steps in order to accurately calculate the total cost of manufactured inventory.

Question 14

With respect to property, plant, and equipment, in the first audit engagement, evidence
must be obtained as to the fairness of the opening balances and the ownership of the assets
making up the balances, whereas in a recurring engagement, the auditor concentrates on
the current year's transactions.

Accepted Answer

In a first audit engagement, the auditor must obtain evidence regarding the opening balances of property, plant, and equipment to ensure they are fairly stated and owned by the company. In a recurring engagement, the focus is on the current year's transactions related to property, plant, and equipment.

Question 15

Perpetual inventory records need to be compared with actual inventory at regular
intervals.

Accepted Answer

Perpetual inventory records rely on continuous tracking and updating, but they still need to be reconciled with physical inventory counts to ensure accuracy and identify discrepancies. This process is typically done on a regular basis, such as monthly or quarterly.

Question 16

All companies are required by Canadian Auditing Standards to maintain a perpetual
inventory system.

Accepted Answer

While many companies choose to maintain a perpetual inventory system, it is not mandatory under Canadian Auditing Standards. Companies may also use periodic inventory systems, as long as they are able to provide adequate disclosure and explanation of their inventory management practices.

Question 17

Inventories received before the period-end are recorded as current purchases and those received after the period end are included in the next period. What assertion is being described?
A) cut-off
B) checking
C) counting
D) preparation

Accepted Answer

The assertion being described is cut-off, which is related to the proper timing and allocation of transactions to the correct period. In this case, it involves the timing of inventory received and how it affects the current period's purchases.

Question 18

The application of analytical procedures to inventories is not used very extensively since
each company has its own inventory policies and procedures which make industry
comparison somewhat useless.

Accepted Answer

Analytical procedures are applied to inventories in the audit process to assess the reasonableness of inventory balances, regardless of a company's specific policies and procedures. These analyses can include comparisons to industry averages, historical inventory levels, and turnover ratios, among others, to identify any unusual or unexpected balances that might warrant further investigation.

Question 19

An important procedure for the conduct of a physical inventory count is to maintain control over the count systems. Which of the following is not a common count system?
A) use of pre-printed inventory count sheets
B) use of blank inventory tags
C) use of blank, pre-numbered inventory count sheets
D) use of pre-numbered, three-part inventory tags

Accepted Answer

The use of blank inventory tags is not a common count system as it does not have any pre-printed information or numbers to aid in tracking and reconciling inventory counts. The other options (A, C, and D) all involve the use of some sort of pre-printed information or numbering system to maintain control over the inventory count process.

Question 20

The transactions relating to property, plant, and equipment are quite often few and each usually material.

Accepted Answer

Transactions related to property, plant, and equipment (PPE) are typically infrequent but involve significant amounts of money, making each transaction material in nature.

Quiz 11: Auditing Inventories and PPE

If the auditor was testing inventory pricing the audit objective being fulfilled would be

Ensuring that inventory transactions are recorded in the correct accounts is an example of the completeness assertion.

Reviewing data pertaining to inventory quality relates primarily to the

In tracing opening inventory balances to working papers for the previous year, the auditor should make certain that any audit adjustments, agreed on in the previous year, were recorded.

The key issue in auditing inventories is to ensure the inventories actually exist, are owned, and are properly valued.

Ensuring that additions and disposals of property, plant, and equipment before the period end are recorded in the current period and those after the period end are included in the next accounting period is an example of the classification assertion.

A capital asset sub-ledger details individual items of plant and equipment and records the cost of each asset and of any additions or alterations, and the accumulated depreciation charged against it.

The key issues in auditing property, plant, and equipment are ensuring that the property, plant, and equipment actually exist, are owned, and are properly valued with adequate provision for depreciation.

Specialized inventories may require the assistance of experts in determining either the quantity (as in the case of aerial measurement of stockpiles) or value (as in the case of antiques).

Which of the following is not a function of maintaining inventory records?

As existence of property, plant, and equipment is the key audit assertion, the auditor does not need to obtain evidence of sales, disposals, and trade-ins.

Close to the end of the reporting period, the auditor needs to consider the extent of test counts relative to total inventory and needs to review the recorded differences between test counts and inventory records over the year as well as the explanations of those differences.

When costing manufactured inventory all of the following procedures are necessary except

With respect to property, plant, and equipment, in the first audit engagement, evidence must be obtained as to the fairness of the opening balances and the ownership of the assets making up the balances, whereas in a recurring engagement, the auditor concentrates on the current year's transactions.

Perpetual inventory records need to be compared with actual inventory at regular intervals.

All companies are required by Canadian Auditing Standards to maintain a perpetual inventory system.

Inventories received before the period-end are recorded as current purchases and those received after the period end are included in the next period. What assertion is being described?

The application of analytical procedures to inventories is not used very extensively since each company has its own inventory policies and procedures which make industry comparison somewhat useless.

An important procedure for the conduct of a physical inventory count is to maintain control over the count systems. Which of the following is not a common count system?

The transactions relating to property, plant, and equipment are quite often few and each usually material.