Question 1

The inventory of Brown Company is distributed between 85 stores throughout the United States,Puerto Rico and Mexico.Brown has a calendar year-end,uses a periodic inventory system and performs a physical count on January 1st of each year.In the planning of the audit of Brown,the engagement team must consider which of the following?

Accepted Answer

D  The engagement team must plan which stores to visit and how many items to test to ensure a representative sample for the audit. They also need to coordinate with the client to arrange the logistics of visiting the selected stores for inventory observation.

Question 2

Preparing for an inventory observation In the audit of inventory the auditor must perform important procedures prior to the actual observation.Identify the steps the auditor must take prior to the day the inventory is actually counted.

Accepted Answer

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Question 3

The acquisition cycle begins with which of the following?

Accepted Answer

The acquisition cycle starts with a requisition, which is a request from an authorized user or department for goods or services. This request initiates the process of acquiring the necessary items to fulfill the user's needs.

Question 4

Inventory controls What are some of the important controls that are expected to be included in a well-conceived inventory control system?

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Question 5

Auditing the valuation assertion for inventory of a client utilizing the FIFO cost flow assumption will require the auditor to examine which of the following?

Accepted Answer

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Question 6

Which of the following might an auditor do in testing for the existence of accounts payable?

Accepted Answer

To test for the existence of accounts payable, an auditor needs to perform a cutoff test of purchases and cash disbursements. This involves reviewing transactions near the end of the accounting period to ensure that they have been recorded in the correct period and that liabilities have been properly recognized. Reviewing financial statement disclosures, long-term purchase commitments, and performing analytical reviews of expense accounts may provide additional information but are not directly related to testing for the existence of accounts payable.

Question 7

The principle of lower of cost or market and the potential obsolescence of inventory are a concern for the audit team because of which of the following?

Accepted Answer

The principle of lower of cost or market and potential obsolescence of inventory are inherent components of complexity related to valuation as they require judgment and estimation by management, and thus pose a risk of misstatement that the auditor must consider in their audit planning and execution.

Question 8

Which of the following is not a potential fraud indicator in the acquisition cycle?

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Question 9

Which of the following is not a standard procedure that the auditor normally should follow in the observation of inventory at year-end?

Accepted Answer

Reviewing disclosure of inventory valuation is not part of the physical observation of inventory but rather part of the financial statement audit procedures.

Question 10

Comparison of Controls in Traditional and Automated Systems Discuss the differences between a traditional receiving system and an automated integrated receiving system.

Accepted Answer

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Question 11

Centralized purchasing List the advantages for implementing a centralized purchasing function.What are the disadvantages (if any)?

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Question 12

Physical inventory procedures Discuss the procedures that the audit team will most likely perform upon arrival at each site right before physical inventory is taken.

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Question 13

Which of the following is a procedure used in an audit where there is a heightened risk of fraud related to accounts payable and other related expense accounts?

Accepted Answer

All the procedures mentioned in options A, B, and C are commonly used when there is a heightened risk of fraud related to accounts payable and other related expense accounts. Sending blank confirmations to vendors can help in verifying the accuracy of account balances and identifying any unauthorized or fraudulent transactions. Scanning journals for unusual or large year-end transactions and adjustments can help in identifying potential fraudulent activity. Obtaining and examining documentation for payments of invoices that are just under the limit that requires approval can be useful in identifying any attempts to circumvent internal controls. Therefore, all of the above procedures are necessary when there is a heightened risk of fraud related to accounts payable and other related expense accounts.

Question 14

Acquisition and payment processes What are the five major phases of the acquisition and payment process?

Accepted Answer

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Question 15

All of the following are required by the auditor before allowing the client to take inventory before year-end except which one?

Accepted Answer

Weak internal controls would not allow the auditor to grant permission for the client to take inventory before year-end. The absence of "red flags", the ability to effectively test the year-end balance, and reviewing intervening transactions are all necessary steps for the auditor to ensure the accuracy and reliability of inventory counts.

Question 16

The auditor in making inquiries regarding the standard cost systems normally does not make which of the following inquiries?

Accepted Answer

Inquiries regarding the standard cost systems typically focus on the development of standard costs, the identification of overhead components and allocation methods, and the identification and allocation of variances. Sales cutoff is not usually relevant to the standard cost system and therefore not typically included in the auditor's inquiry.

Question 17

Auditing accounts payable What are the procedures available to auditors in auditing accounts payable and what level of assurance is obtained by each? Describe at least three.Which primary assertion is tested through these approaches?

Accepted Answer

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Question 18

Cost accounting systems When auditing a manufacturing concern,what major inquiries might be made by the auditor about the cost accounting system?

Accepted Answer

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Question 19

When the auditor reviews vendor invoices while testing disbursements to determine whether the client actually owes a liability for the accounts payable,the auditor is testing for which assertion?

Accepted Answer

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Quiz 11: Auditing Inventory, goods and Services, and Accounts Payable: the Acquisition and Payment Cycle