When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that:
A)quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand.
B)physical inventories are in substantial agreement with book inventories.
C)the system is in accordance with generally accepted accounting principles and is functioning as planned.
D)costs have been properly assigned to work in process, finished goods, and cost of goods sold.

Question

Quizplus · Accepted Answer

When testing an entity's cost accounting system, the auditor's primary concern is to determine if the costs have been properly allocated to the corresponding areas such as work in process, finished goods, and cost of goods sold. This ensures that the financial statements accurately reflect the cost of goods produced and sold, which is important for investors and other stakeholders. The other three options are relevant to the testing of inventory, but not specifically related to the cost accounting system.

When an Auditor Tests an Entity's Cost Accounting System, the Auditor's