Question 1

We know from cost accounting that there are three components that make up the standard costs for inventory.Explain how an auditor could test each of these components for a company that manufactures pillows.

Accepted Answer

The answer of We know from cost accounting that there...

Question 2

For each of the following,state whether it is a test of details of account balances or a test of details of disclosures.Then note for which assertion the test provides evidence.
1.Inspect loan agreements under which an entity's inventories are pledged.
2.Review inventory compilation for proper classification among raw materials,work in process and finished goods.
3.Observe the count of physical inventory.
4.Trace test counts and tag control information to the inventory compilation.
5.Inquire of management about issues related to LIFO liquidations.
6.Review book-to-physical adjustments for possible misstatements.

Accepted Answer

The answer of For each of the following,state whether it...

Question 3

Which of the following is a question that the auditor would expect to find on the production process section of an internal control questionnaire?
A) Are vendors' invoices for raw materials approved for payment by an employee who is independent of the cash disbursements function?
B) Are signed checks for the purchase of raw materials mailed directly after signing without being returned to the person who authorized the invoice processing?
C) Are all releases by storekeepers of raw materials from storage based on approved requisition documents?
D) Are details of individual disbursements for raw materials balanced with the total to be posted to the appropriate general ledger account?

Accepted Answer

This question is focused on the production process and specifically addresses the release of raw materials from storage. It aims to ensure that there is a proper approval process in place for the requisition of raw materials. The other options relate to the approval and payment of invoices, the mailing of signed checks, and the reconciliation of disbursements, which are not directly related to the production process.

Question 4

In order to efficiently establish the correctness of the accounts payable cutoff,an auditor will be most likely to
A) Coordinate cutoff tests with physical inventory observation.
B) Compare cutoff reports with purchase orders.
C) Compare vendors' invoices with vendors' statements.
D) Coordinate mailing of confirmations with cutoff tests.

Accepted Answer

The auditor should coordinate cutoff tests with physical inventory observation in order to verify the accuracy of the accounts payable cutoff. During this process, the auditor can ensure that all purchases made before the cutoff date have been recorded in the correct period and that any purchases made after the cutoff date are not included in the accounts payable balance. This helps to establish the completeness and accuracy of the accounts payable balance. Comparing cutoff reports with purchase orders, comparing vendors' invoices with vendors' statements, and coordinating mailing of confirmations with cutoff tests are all important audit procedures but do not specifically address the accuracy of the accounts payable cutoff.

Question 5

State the six functions that make up the inventory management process.For each function,identify the related documents and/or records that would be used by a manufacturing company.

Accepted Answer

The answer of State the six functions that make up...

Question 6

You are auditing SBT,which has a December 31^st year-end.On December 24^th,the person responsible for processing receiving reports and recording the receipt of inventory became very ill and was out of the office for a week.Due to the company's small staff and the holiday season,a number of the receiving reports were not processed on a timely basis.As an auditor,on which assertion would you place a high importance for this client and how would you test for it?

Accepted Answer

The answer of You are auditing SBT,which has a December...

Question 7

Which assertion for ending inventory is most likely violated if the gross profit percentage is much greater than last year?
A) Existence.
B) Completeness.
C) Rights and obligations.
D) Valuation and allocation.

Accepted Answer

The answer of Which assertion for ending inventory is most...

Question 8

An auditor concluded that no excessive costs for idle plant were charged to inventory.This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory,including presentation and disclosure and
A) Valuation and allocation.
B) Completeness.
C) Existence.
D) Rights and obligations.

Accepted Answer

The assertion of valuation and allocation is relevant in determining whether inventory is stated at the appropriate value on the financial statements. In this case, the auditor's conclusion that no excessive costs for idle plant were charged to inventory provides evidence that inventory was fairly valued and that costs were appropriately allocated.

Question 9

Explain the importance of observing physical inventory during an audit.

Accepted Answer

The answer of Explain the importance of observing physical inventory...

Question 10

The accuracy of perpetual inventory records may be established,in part,by comparing perpetual inventory records with
A) Purchase requisitions.
B) Receiving reports.
C) Purchase orders.
D) Vendor payments.

Accepted Answer

Receiving reports provide a record of the actual inventory received and can be compared to the perpetual inventory records to ensure accuracy. Purchase requisitions and purchase orders are used to request or authorize purchases, while vendor payments refer to payments made to suppliers and do not provide information about inventory levels.

Question 11

List five things an auditor should do during the observation of the physical count of inventory.

Accepted Answer

The answer of List five things an auditor should do...

Question 12

Below is information relating to the inventory management of your audit client,Quick Sell.Using analytical procedures,identify any concerns you have about misstatements in the financial statements. $$\begin{array} { | l | l | l | l | } 
\hline & 2008 & 2009 & \text { Industry Average } \
\hline \text { Inventory } & \$ 16,500 & \$ 26,250 &\$25,000 \
\hline \text { Inventory Turnover } & 12 & 9&18 \
\hline
\end{array}$$

Accepted Answer

The answer of Below is information relating to the inventory...

Question 13

The audit of the inventory management process is affected by the audit results from multiple other processes.Identify the processes,other than the inventory management process,that affect the audit of inventory and explain how each affect the audit of inventory.

Accepted Answer

The answer of The audit of the inventory management process...

Question 14

The audit of inventory is often the most involved aspect of an audit.Describe at least three inherent risk factors that affect the audit of inventory.

Accepted Answer

The answer of The audit of inventory is often the...

Quiz 21: Assurance,Attestation,and Internal Auditing Services

We know from cost accounting that there are three components that make up the standard costs for inventory.Explain how an auditor could test each of these components for a company that manufactures pillows.

Which of the following is a question that the auditor would expect to find on the production process section of an internal control questionnaire?

In order to efficiently establish the correctness of the accounts payable cutoff,an auditor will be most likely to

State the six functions that make up the inventory management process.For each function,identify the related documents and/or records that would be used by a manufacturing company.

Which assertion for ending inventory is most likely violated if the gross profit percentage is much greater than last year?

An auditor concluded that no excessive costs for idle plant were charged to inventory.This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory,including presentation and disclosure and

Explain the importance of observing physical inventory during an audit.

The accuracy of perpetual inventory records may be established,in part,by comparing perpetual inventory records with

List five things an auditor should do during the observation of the physical count of inventory.

The audit of the inventory management process is affected by the audit results from multiple other processes.Identify the processes,other than the inventory management process,that affect the audit of inventory and explain how each affect the audit of inventory.

The audit of inventory is often the most involved aspect of an audit.Describe at least three inherent risk factors that affect the audit of inventory.