Home PageSocial ScienceEconomicsFinanceAccountingaudit chapter 12 quiz - Flashcards audit chapter 12 quiz – Flashcards Brad Bledsoe 7 July 2022 questionWhich of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? answerEstablish that the client includes only inventory on hand at year-end in inventory totals. questionThe receiving department is least likely to be responsible for the: answerPreparation of a shipping document. questionThe document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: answerBill of lading. questionThe organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the: answerCost Accounting Standards Board. questionWhen a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: answerExistence. questionInstead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and: answerWell-kept records of perpetual inventory are maintained. questionThe auditor's analytical procedures will be facilitated if the client: answerUses a standard cost system that produces variance reports. questionWhen perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: answerWant the client to schedule the physical inventory count at the end of the year. questionWhich of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? answerObserve merchandise and raw materials during the client's physical inventory taking. questionMcPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins: answerCan issue an unqualified opinion without disclosing that she did not observe year-end inventories. questionThe primary objective of a CPA's observation of a client's physical inventory count is to: answerObtain direct knowledge that the inventory exists and has been properly counted. questionAn auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: answerValuation questionAn auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to: answerExistence questionAn auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and: answerValuation questionDuring the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to: answerCompleteness questionAn auditor most likely would analyze inventory turnover rates to obtain evidence about: answerValuation questionThe McKesson & Robbins case highlighted the need to directly verify the existence of a client's inventory. answerTrue questionSince the employees in the purchasing department order inventory items, they should inspect and receive the items when the goods arrive. answerFalse questionSerially numbered purchase orders should be issued for purchases of goods. answerTrue questionThe receiving department normally sends raw materials received to the production department and obtains a receipt from the supervisor. answerFalse questionFactory overhead is normally assigned to work-in-process immediately as overhead expenses are incurred. answerFalse questionPerpetual inventory records not only help control theft of inventories, they also generally result in improved production planning. answerTrue questionTesting the cost accounting system is a major step in determining the appropriate valuation of inventories in a manufacturing business. answerTrue questionTo assure that the physical inventory is taken properly, the auditors should prepare and take primary responsibility for the physical inventory instructions. answerFalse questionObservation of inventory is a generally accepted auditing procedure. answerTrue questionThe auditors' observation of the taking of a client's physical inventory must be done on, or shortly after the balance sheet date. answerFalse questionThe extent of the auditors' test counts of inventory items should be influenced by the inherent risk of the client's inventory and the adequacy of the client's internal control. answerTrue questionThe auditors should record the details of their test counts in the audit working papers to be used to test the client's completed physical inventory listing. answerTrue questionThe auditors need never observe inventories stored in legitimate public warehouses. answerFalse questionManagement representations concerning inventories often include representations regarding purchase and sales commitments. answerTrue questionIf the auditors are unable to satisfy themselves regarding the fairness of the client's beginning inventories, they will be unable to give an unmodified opinion on any of the financial statements. answerFalse questionAnalytical procedures may reveal conditions indicating that the client has significant amounts of obsolete inventory. answerTrue questionGoods in transit at the balance sheet date should never be included in the client's inventory. answerFalse questionDuring the auditors' observation of the physical inventory, they often obtain information that may be used to test the cutoff of the client's purchase transactions. answerTrue questionAuditors may use statistical sampling for their test counts, but the client should never use statistical sampling to estimate the quantities of goods on hand. answerfalse questionProper presentation of inventories includes disclosure of inventory that is pledged as collateral for loans. answerTrue questionOn June 15, 200X, Ward, CPA, accepted an engagement to perform an audit of the Grant Co. for the year ended December 31,200X. Grant Co. has not previously been audited by a CPA and Ward has been unable to satisfy himself with respect to opening inventories. How should Ward report on his audit? answerHe would have to disclaim an opinion or qualify his opinion on the income statement and the statement of cash flows, but could issue an unmodified opinion on the December 31, 200X balance sheet. questionFrom which of the following evidence gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories? answerObservation of physical inventory counts. questionA client's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record: answersales questionAn inventory turnover analysis is useful to the auditor because it may detect: answerthe existence of obsolete merchandise. questionWhen an auditor tests a client's cost accounting system, the auditors' tests are primarily designed to determine that: answercosts have been properly assigned to finished goods, work-in-process, and cost of goods sold. questionAn auditor would be least likely to learn of slow-moving inventory through: answervouching of year-end purchases. questionAn auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the physical inventory sheets. The purpose of this procedure is to obtain assurance that: answerall inventory represented by an inventory tag is listed on the inventory sheets. questionFrom the auditor's point of view, inventory counts are more acceptable prior to the year-end when: answeraccurate perpetual inventory records are maintained. questionPurchase cutoff procedures should be designed to test whether or not all inventory: answeris owned by the company. questionWhich of the following is an effective control that encourages receiving department personnel to count and inspect all merchandise received? answerQuantities ordered are excluded from the receiving department copy of the purchase order. questionTo strengthen the system of internal control over the purchase of merchandise, a company's receiving department should: answeraccept merchandise only if a purchase order or approval granted by the purchasing department is on hand. questionA client's materials purchasing cycle begins with requisitions from user departments and ends with the receipt of materials and the recognition of a liability. An auditor's primary objective in reviewing this cycle is to: answerevaluate the reliability of information generated as a result of the purchasing process. questionWhich of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? answerEstablish that the client includes only inventory on hand at year-end in inventory totals. questionThe receiving department is least likely to be responsible for the: answerPreparation of a shipping document. questionThe document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: answerBill of lading. questionThe organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the: answerCost Accounting Standards Board. questionWhen a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: answerExistence. questionInstead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and: answerWell-kept records of perpetual inventory are maintained. questionThe auditor's analytical procedures will be facilitated if the client: answerUses a standard cost system that produces variance reports. questionWhen perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: answerWant the client to schedule the physical inventory count at the end of the year. questionWhich of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? answerObserve merchandise and raw materials during the client's physical inventory taking. questionMcPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins: answerCan issue an unqualified opinion without disclosing that she did not observe year-end inventories. questionThe primary objective of a CPA's observation of a client's physical inventory count is to: answerObtain direct knowledge that the inventory exists and has been properly counted. questionAn auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: answerValuation questionAn auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to: answerExistence questionAn auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and: answerValuation. questionDuring the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to: answerCompleteness. questionAn auditor most likely would analyze inventory turnover rates to obtain evidence about: answerValuation. questionInventory is understated because warehouse personnel overlooked several racks of parts in taking the physical inventory. answerError questionInventory is overstated because warehouse personnel included inventory items received subsequent to year-end while recording the purchase in the subsequent year to hide inventory shortages. answerFraud questionInventory is overstated because management instructed computer personnel to make changes in the file used to price inventories. answerFraud questionObservation of inventories is a generally accepted auditing standard. answerT questionThe receiving department should accept only goods for which there is an approved purchase order on hand. answerf questionFor good internal control over purchase transactions, purchases should be made from approved vendors by the department needing the goods. answerf questionAuditors should not review the client's planning of the physical inventory. answerf questionThe proper cutoff of inventories is best achieved when the client uses prenumbered purchase orders. answerf questionThe lower of cost or market test by the auditors is generally designed to assure that inventories are not valued above their net realizable values. answert questionWhen the auditors cannot satisfy themselves as to the accuracy of ending inventory and a material misstatement may exist, they normally may still give an unqualified opinion on the client's income statement. answerf questionTo test the client's cutoff of inventories, the auditors will make a record of the serial number of the final receiving and shipping documents used prior to the taking of the physical inventory. answert questionThe use of a tagging system for inventory taking is designed to prevent double counting of goods. answert questionThe examination of warehouse receipts is not sufficient verification of a material amount of goods stored in public warehouses. answert questionAn auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: answerCash disbursements. questionWhich of the following is not true relating to the auditors' observation of the client's physical inventory? answerThe auditors should make certain that consigned items from suppliers are included in physical inventory totals. questionA receiving department compares inventory items received with copies of purchase orders. The purchase orders list the name of the vendor and do not list the quantities of the material ordered. Using the purchase orders, the receiving department is most likely to detect: answerDeliveries for which no purchase order was issued. questionTo measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into: answerCost of good sold. questionWhich of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper? answerTesting the entity's computation of standard overhead rates. questionA client uses a periodic inventory system. One would expect a credit to which of the following accounts at the point of sale? answersales, not inventory questionA client uses a perpetual inventory system. One would expect a credit to which of the following accounts at the point of sale? answersales and inventory questionWhich of the following would an auditor most likely question included in calculation of the overhead rate for a company that manufactures a product? answerSales expense. questionA "bill and hold" scheme is most likely to include: answerRecording of sales items that the company retains as of year-end. questionWhich of the following is an auditor least likely to consider a departure from U.S. generally accepted accounting principles? answerIncluding in inventory items that are consigned out to vendors, but not yet sold. questionWhich of the following is least likely to be an accurate statement concerning characteristics of an audit? answerAn analysis of inventory turnover addresses whether the proper method of determining inventory costs--as contrasted to market values--is being applied. questionWhich of the following is not a reason for the special significance attached by the auditors to the verification of inventories? answerThe existence of inventories is inherently difficult to substantiate. questionWhich of the following is true about the auditors' observation of the client's physical inventory? answerThe auditors' observation addresses the existence assertion. questionIn verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the: answerVendors' invoices. questionIn verifying credits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the: answerShipping documents. questionAn auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly? answerCompleteness. questionThe use of a "blind" purchase order is designed to prevent errors by the: answerReceiving department. questionAn auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all: answerVendor's invoices. questionTo assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor's invoice to: answerThe purchase order. questionWhich of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse? answerCorresponding with the state agency regarding the authenticity of the public warehouse. questionWhich of the following best describes the reason that the auditors record their inventory test counts in the working papers? answerFor subsequent comparison with the completed inventory listing. questionWhich of the following best describes the reason for the auditors' review of the client's cost accounting system? answerTo obtain evidence about the valuation of work-in-process, finished goods, and cost of goods sold. questionEffective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has: answerThe authority to make purchases of requisitioned materials and services. questionPurchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client company, if the company: answerHolds legal title to the merchandise. questionWhich of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items? answerThe storekeeper is responsible for maintenance of perpetual inventory records. questionAn internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? answerSelect and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks. questionA client's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record: answerPurchases questionWhich one of the following procedures would not be appropriate for the auditors in discharging their responsibilities concerning the client's physical inventories? answerSupervising the taking of the annual physical inventory. questionTo best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the: answerPurchase cutoff procedures. questionPurchase cutoff procedures should be designed to test whether all inventory: answerOwned by the company was recorded. questionAfter accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items: answerRepresented by inventory tags are included in the listing. questionThe most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to: answerObserve physical counts of the inventory items. questionTracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that: answerSales billed to customers were actually shipped. questionIn auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified? answerTour the manufacturing plant or production facility. questionWhich of the following is not a part of the auditors' responsibility when a client counts its inventory? answerDetermine which counts they will make and which counts the client will make. questionWhich statement is correct relating to the count of inventory when a company that specializes in taking such counts ("the company") is involved with counting a client's inventory? answerThe auditor should not consider the counts by the company, by themselves, sufficient appropriate audit evidence. 1 of
Unlock all answers in this set
Unlock answers questionWhich of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? answerEstablish that the client includes only inventory on hand at year-end in inventory totals. questionThe receiving department is least likely to be responsible for the: answerPreparation of a shipping document. questionThe document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: answerBill of lading. questionThe organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the: answerCost Accounting Standards Board. questionWhen a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: answerExistence. questionInstead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and: answerWell-kept records of perpetual inventory are maintained. questionThe auditor's analytical procedures will be facilitated if the client: answerUses a standard cost system that produces variance reports. questionWhen perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: answerWant the client to schedule the physical inventory count at the end of the year. questionWhich of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? answerObserve merchandise and raw materials during the client's physical inventory taking. questionMcPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins: answerCan issue an unqualified opinion without disclosing that she did not observe year-end inventories. questionThe primary objective of a CPA's observation of a client's physical inventory count is to: answerObtain direct knowledge that the inventory exists and has been properly counted. questionAn auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: answerValuation questionAn auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to: answerExistence questionAn auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and: answerValuation questionDuring the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to: answerCompleteness questionAn auditor most likely would analyze inventory turnover rates to obtain evidence about: answerValuation questionThe McKesson & Robbins case highlighted the need to directly verify the existence of a client's inventory. answerTrue questionSince the employees in the purchasing department order inventory items, they should inspect and receive the items when the goods arrive. answerFalse questionSerially numbered purchase orders should be issued for purchases of goods. answerTrue questionThe receiving department normally sends raw materials received to the production department and obtains a receipt from the supervisor. answerFalse questionFactory overhead is normally assigned to work-in-process immediately as overhead expenses are incurred. answerFalse questionPerpetual inventory records not only help control theft of inventories, they also generally result in improved production planning. answerTrue questionTesting the cost accounting system is a major step in determining the appropriate valuation of inventories in a manufacturing business. answerTrue questionTo assure that the physical inventory is taken properly, the auditors should prepare and take primary responsibility for the physical inventory instructions. answerFalse questionObservation of inventory is a generally accepted auditing procedure. answerTrue questionThe auditors' observation of the taking of a client's physical inventory must be done on, or shortly after the balance sheet date. answerFalse questionThe extent of the auditors' test counts of inventory items should be influenced by the inherent risk of the client's inventory and the adequacy of the client's internal control. answerTrue questionThe auditors should record the details of their test counts in the audit working papers to be used to test the client's completed physical inventory listing. answerTrue questionThe auditors need never observe inventories stored in legitimate public warehouses. answerFalse questionManagement representations concerning inventories often include representations regarding purchase and sales commitments. answerTrue questionIf the auditors are unable to satisfy themselves regarding the fairness of the client's beginning inventories, they will be unable to give an unmodified opinion on any of the financial statements. answerFalse questionAnalytical procedures may reveal conditions indicating that the client has significant amounts of obsolete inventory. answerTrue questionGoods in transit at the balance sheet date should never be included in the client's inventory. answerFalse questionDuring the auditors' observation of the physical inventory, they often obtain information that may be used to test the cutoff of the client's purchase transactions. answerTrue questionAuditors may use statistical sampling for their test counts, but the client should never use statistical sampling to estimate the quantities of goods on hand. answerfalse questionProper presentation of inventories includes disclosure of inventory that is pledged as collateral for loans. answerTrue questionOn June 15, 200X, Ward, CPA, accepted an engagement to perform an audit of the Grant Co. for the year ended December 31,200X. Grant Co. has not previously been audited by a CPA and Ward has been unable to satisfy himself with respect to opening inventories. How should Ward report on his audit? answerHe would have to disclaim an opinion or qualify his opinion on the income statement and the statement of cash flows, but could issue an unmodified opinion on the December 31, 200X balance sheet. questionFrom which of the following evidence gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories? answerObservation of physical inventory counts. questionA client's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record: answersales questionAn inventory turnover analysis is useful to the auditor because it may detect: answerthe existence of obsolete merchandise. questionWhen an auditor tests a client's cost accounting system, the auditors' tests are primarily designed to determine that: answercosts have been properly assigned to finished goods, work-in-process, and cost of goods sold. questionAn auditor would be least likely to learn of slow-moving inventory through: answervouching of year-end purchases. questionAn auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the physical inventory sheets. The purpose of this procedure is to obtain assurance that: answerall inventory represented by an inventory tag is listed on the inventory sheets. questionFrom the auditor's point of view, inventory counts are more acceptable prior to the year-end when: answeraccurate perpetual inventory records are maintained. questionPurchase cutoff procedures should be designed to test whether or not all inventory: answeris owned by the company. questionWhich of the following is an effective control that encourages receiving department personnel to count and inspect all merchandise received? answerQuantities ordered are excluded from the receiving department copy of the purchase order. questionTo strengthen the system of internal control over the purchase of merchandise, a company's receiving department should: answeraccept merchandise only if a purchase order or approval granted by the purchasing department is on hand. questionA client's materials purchasing cycle begins with requisitions from user departments and ends with the receipt of materials and the recognition of a liability. An auditor's primary objective in reviewing this cycle is to: answerevaluate the reliability of information generated as a result of the purchasing process. questionWhich of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? answerEstablish that the client includes only inventory on hand at year-end in inventory totals. questionThe receiving department is least likely to be responsible for the: answerPreparation of a shipping document. questionThe document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: answerBill of lading. questionThe organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the: answerCost Accounting Standards Board. questionWhen a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: answerExistence. questionInstead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and: answerWell-kept records of perpetual inventory are maintained. questionThe auditor's analytical procedures will be facilitated if the client: answerUses a standard cost system that produces variance reports. questionWhen perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: answerWant the client to schedule the physical inventory count at the end of the year. questionWhich of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? answerObserve merchandise and raw materials during the client's physical inventory taking. questionMcPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins: answerCan issue an unqualified opinion without disclosing that she did not observe year-end inventories. questionThe primary objective of a CPA's observation of a client's physical inventory count is to: answerObtain direct knowledge that the inventory exists and has been properly counted. questionAn auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: answerValuation questionAn auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to: answerExistence questionAn auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and: answerValuation. questionDuring the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to: answerCompleteness. questionAn auditor most likely would analyze inventory turnover rates to obtain evidence about: answerValuation. questionInventory is understated because warehouse personnel overlooked several racks of parts in taking the physical inventory. answerError questionInventory is overstated because warehouse personnel included inventory items received subsequent to year-end while recording the purchase in the subsequent year to hide inventory shortages. answerFraud questionInventory is overstated because management instructed computer personnel to make changes in the file used to price inventories. answerFraud questionObservation of inventories is a generally accepted auditing standard. answerT questionThe receiving department should accept only goods for which there is an approved purchase order on hand. answerf questionFor good internal control over purchase transactions, purchases should be made from approved vendors by the department needing the goods. answerf questionAuditors should not review the client's planning of the physical inventory. answerf questionThe proper cutoff of inventories is best achieved when the client uses prenumbered purchase orders. answerf questionThe lower of cost or market test by the auditors is generally designed to assure that inventories are not valued above their net realizable values. answert questionWhen the auditors cannot satisfy themselves as to the accuracy of ending inventory and a material misstatement may exist, they normally may still give an unqualified opinion on the client's income statement. answerf questionTo test the client's cutoff of inventories, the auditors will make a record of the serial number of the final receiving and shipping documents used prior to the taking of the physical inventory. answert questionThe use of a tagging system for inventory taking is designed to prevent double counting of goods. answert questionThe examination of warehouse receipts is not sufficient verification of a material amount of goods stored in public warehouses. answert questionAn auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: answerCash disbursements. questionWhich of the following is not true relating to the auditors' observation of the client's physical inventory? answerThe auditors should make certain that consigned items from suppliers are included in physical inventory totals. questionA receiving department compares inventory items received with copies of purchase orders. The purchase orders list the name of the vendor and do not list the quantities of the material ordered. Using the purchase orders, the receiving department is most likely to detect: answerDeliveries for which no purchase order was issued. questionTo measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into: answerCost of good sold. questionWhich of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper? answerTesting the entity's computation of standard overhead rates. questionA client uses a periodic inventory system. One would expect a credit to which of the following accounts at the point of sale? answersales, not inventory questionA client uses a perpetual inventory system. One would expect a credit to which of the following accounts at the point of sale? answersales and inventory questionWhich of the following would an auditor most likely question included in calculation of the overhead rate for a company that manufactures a product? answerSales expense. questionA "bill and hold" scheme is most likely to include: answerRecording of sales items that the company retains as of year-end. questionWhich of the following is an auditor least likely to consider a departure from U.S. generally accepted accounting principles? answerIncluding in inventory items that are consigned out to vendors, but not yet sold. questionWhich of the following is least likely to be an accurate statement concerning characteristics of an audit? answerAn analysis of inventory turnover addresses whether the proper method of determining inventory costs--as contrasted to market values--is being applied. questionWhich of the following is not a reason for the special significance attached by the auditors to the verification of inventories? answerThe existence of inventories is inherently difficult to substantiate. questionWhich of the following is true about the auditors' observation of the client's physical inventory? answerThe auditors' observation addresses the existence assertion. questionIn verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the: answerVendors' invoices. questionIn verifying credits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the: answerShipping documents. questionAn auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly? answerCompleteness. questionThe use of a "blind" purchase order is designed to prevent errors by the: answerReceiving department. questionAn auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all: answerVendor's invoices. questionTo assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor's invoice to: answerThe purchase order. questionWhich of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse? answerCorresponding with the state agency regarding the authenticity of the public warehouse. questionWhich of the following best describes the reason that the auditors record their inventory test counts in the working papers? answerFor subsequent comparison with the completed inventory listing. questionWhich of the following best describes the reason for the auditors' review of the client's cost accounting system? answerTo obtain evidence about the valuation of work-in-process, finished goods, and cost of goods sold. questionEffective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has: answerThe authority to make purchases of requisitioned materials and services. questionPurchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client company, if the company: answerHolds legal title to the merchandise. questionWhich of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items? answerThe storekeeper is responsible for maintenance of perpetual inventory records. questionAn internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? answerSelect and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks. questionA client's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record: answerPurchases questionWhich one of the following procedures would not be appropriate for the auditors in discharging their responsibilities concerning the client's physical inventories? answerSupervising the taking of the annual physical inventory. questionTo best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the: answerPurchase cutoff procedures. questionPurchase cutoff procedures should be designed to test whether all inventory: answerOwned by the company was recorded. questionAfter accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items: answerRepresented by inventory tags are included in the listing. questionThe most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to: answerObserve physical counts of the inventory items. questionTracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that: answerSales billed to customers were actually shipped. questionIn auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified? answerTour the manufacturing plant or production facility. questionWhich of the following is not a part of the auditors' responsibility when a client counts its inventory? answerDetermine which counts they will make and which counts the client will make. questionWhich statement is correct relating to the count of inventory when a company that specializes in taking such counts ("the company") is involved with counting a client's inventory? answerThe auditor should not consider the counts by the company, by themselves, sufficient appropriate audit evidence. Related Flashcards
Standard 8 Test - Flashcards
Exam #2 (PP) - Flashcards
Unit 6.1 and H Digestion/Absorption - Flashcards
FIRST AID for the Psychiatry Clerkship Mnemonics 4th Ed - Flashcards
Euro chap 15 - Flashcards
Related categories
Cost Accounting
Haven't found what you were looking for?
Search for samples, answers to your questions and flashcards
Get an explanation on any task Get unstuck with the help of our AI assistant in seconds New Get unstuck with AI assistant right now
Enter your topic/question
Receive an explanation
Pro tips to get quality response
Ask one question at a time
Enter a specific assignment topic
Aim at least 500 characters
Get explanation Question What is the right structure for an essay Answer A paragraph is a related group of sentences that develops one main idea. Each paragraph in the body of the essay should contain:
a topic sentence that states the main or controlling idea
supporting sentences to explain and develop the point you’re making
evidence from your reading or an example from the subject area that supports your point
analysis of the implication/significance/impact of the evidence finished off with a critical conclusion you have drawn from the evidence.
Ask another question Haven't found what you were looking for?
Brad Bledsoe 7 July 2022 questionWhich of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? answerEstablish that the client includes only inventory on hand at year-end in inventory totals. questionThe receiving department is least likely to be responsible for the: answerPreparation of a shipping document. questionThe document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: answerBill of lading. questionThe organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the: answerCost Accounting Standards Board. questionWhen a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: answerExistence. questionInstead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and: answerWell-kept records of perpetual inventory are maintained. questionThe auditor's analytical procedures will be facilitated if the client: answerUses a standard cost system that produces variance reports. questionWhen perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: answerWant the client to schedule the physical inventory count at the end of the year. questionWhich of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? answerObserve merchandise and raw materials during the client's physical inventory taking. questionMcPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins: answerCan issue an unqualified opinion without disclosing that she did not observe year-end inventories. questionThe primary objective of a CPA's observation of a client's physical inventory count is to: answerObtain direct knowledge that the inventory exists and has been properly counted. questionAn auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: answerValuation questionAn auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to: answerExistence questionAn auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and: answerValuation questionDuring the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to: answerCompleteness questionAn auditor most likely would analyze inventory turnover rates to obtain evidence about: answerValuation questionThe McKesson & Robbins case highlighted the need to directly verify the existence of a client's inventory. answerTrue questionSince the employees in the purchasing department order inventory items, they should inspect and receive the items when the goods arrive. answerFalse questionSerially numbered purchase orders should be issued for purchases of goods. answerTrue questionThe receiving department normally sends raw materials received to the production department and obtains a receipt from the supervisor. answerFalse questionFactory overhead is normally assigned to work-in-process immediately as overhead expenses are incurred. answerFalse questionPerpetual inventory records not only help control theft of inventories, they also generally result in improved production planning. answerTrue questionTesting the cost accounting system is a major step in determining the appropriate valuation of inventories in a manufacturing business. answerTrue questionTo assure that the physical inventory is taken properly, the auditors should prepare and take primary responsibility for the physical inventory instructions. answerFalse questionObservation of inventory is a generally accepted auditing procedure. answerTrue questionThe auditors' observation of the taking of a client's physical inventory must be done on, or shortly after the balance sheet date. answerFalse questionThe extent of the auditors' test counts of inventory items should be influenced by the inherent risk of the client's inventory and the adequacy of the client's internal control. answerTrue questionThe auditors should record the details of their test counts in the audit working papers to be used to test the client's completed physical inventory listing. answerTrue questionThe auditors need never observe inventories stored in legitimate public warehouses. answerFalse questionManagement representations concerning inventories often include representations regarding purchase and sales commitments. answerTrue questionIf the auditors are unable to satisfy themselves regarding the fairness of the client's beginning inventories, they will be unable to give an unmodified opinion on any of the financial statements. answerFalse questionAnalytical procedures may reveal conditions indicating that the client has significant amounts of obsolete inventory. answerTrue questionGoods in transit at the balance sheet date should never be included in the client's inventory. answerFalse questionDuring the auditors' observation of the physical inventory, they often obtain information that may be used to test the cutoff of the client's purchase transactions. answerTrue questionAuditors may use statistical sampling for their test counts, but the client should never use statistical sampling to estimate the quantities of goods on hand. answerfalse questionProper presentation of inventories includes disclosure of inventory that is pledged as collateral for loans. answerTrue questionOn June 15, 200X, Ward, CPA, accepted an engagement to perform an audit of the Grant Co. for the year ended December 31,200X. Grant Co. has not previously been audited by a CPA and Ward has been unable to satisfy himself with respect to opening inventories. How should Ward report on his audit? answerHe would have to disclaim an opinion or qualify his opinion on the income statement and the statement of cash flows, but could issue an unmodified opinion on the December 31, 200X balance sheet. questionFrom which of the following evidence gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories? answerObservation of physical inventory counts. questionA client's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record: answersales questionAn inventory turnover analysis is useful to the auditor because it may detect: answerthe existence of obsolete merchandise. questionWhen an auditor tests a client's cost accounting system, the auditors' tests are primarily designed to determine that: answercosts have been properly assigned to finished goods, work-in-process, and cost of goods sold. questionAn auditor would be least likely to learn of slow-moving inventory through: answervouching of year-end purchases. questionAn auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the physical inventory sheets. The purpose of this procedure is to obtain assurance that: answerall inventory represented by an inventory tag is listed on the inventory sheets. questionFrom the auditor's point of view, inventory counts are more acceptable prior to the year-end when: answeraccurate perpetual inventory records are maintained. questionPurchase cutoff procedures should be designed to test whether or not all inventory: answeris owned by the company. questionWhich of the following is an effective control that encourages receiving department personnel to count and inspect all merchandise received? answerQuantities ordered are excluded from the receiving department copy of the purchase order. questionTo strengthen the system of internal control over the purchase of merchandise, a company's receiving department should: answeraccept merchandise only if a purchase order or approval granted by the purchasing department is on hand. questionA client's materials purchasing cycle begins with requisitions from user departments and ends with the receipt of materials and the recognition of a liability. An auditor's primary objective in reviewing this cycle is to: answerevaluate the reliability of information generated as a result of the purchasing process. questionWhich of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? answerEstablish that the client includes only inventory on hand at year-end in inventory totals. questionThe receiving department is least likely to be responsible for the: answerPreparation of a shipping document. questionThe document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: answerBill of lading. questionThe organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the: answerCost Accounting Standards Board. questionWhen a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: answerExistence. questionInstead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and: answerWell-kept records of perpetual inventory are maintained. questionThe auditor's analytical procedures will be facilitated if the client: answerUses a standard cost system that produces variance reports. questionWhen perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: answerWant the client to schedule the physical inventory count at the end of the year. questionWhich of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? answerObserve merchandise and raw materials during the client's physical inventory taking. questionMcPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins: answerCan issue an unqualified opinion without disclosing that she did not observe year-end inventories. questionThe primary objective of a CPA's observation of a client's physical inventory count is to: answerObtain direct knowledge that the inventory exists and has been properly counted. questionAn auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: answerValuation questionAn auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to: answerExistence questionAn auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and: answerValuation. questionDuring the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to: answerCompleteness. questionAn auditor most likely would analyze inventory turnover rates to obtain evidence about: answerValuation. questionInventory is understated because warehouse personnel overlooked several racks of parts in taking the physical inventory. answerError questionInventory is overstated because warehouse personnel included inventory items received subsequent to year-end while recording the purchase in the subsequent year to hide inventory shortages. answerFraud questionInventory is overstated because management instructed computer personnel to make changes in the file used to price inventories. answerFraud questionObservation of inventories is a generally accepted auditing standard. answerT questionThe receiving department should accept only goods for which there is an approved purchase order on hand. answerf questionFor good internal control over purchase transactions, purchases should be made from approved vendors by the department needing the goods. answerf questionAuditors should not review the client's planning of the physical inventory. answerf questionThe proper cutoff of inventories is best achieved when the client uses prenumbered purchase orders. answerf questionThe lower of cost or market test by the auditors is generally designed to assure that inventories are not valued above their net realizable values. answert questionWhen the auditors cannot satisfy themselves as to the accuracy of ending inventory and a material misstatement may exist, they normally may still give an unqualified opinion on the client's income statement. answerf questionTo test the client's cutoff of inventories, the auditors will make a record of the serial number of the final receiving and shipping documents used prior to the taking of the physical inventory. answert questionThe use of a tagging system for inventory taking is designed to prevent double counting of goods. answert questionThe examination of warehouse receipts is not sufficient verification of a material amount of goods stored in public warehouses. answert questionAn auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: answerCash disbursements. questionWhich of the following is not true relating to the auditors' observation of the client's physical inventory? answerThe auditors should make certain that consigned items from suppliers are included in physical inventory totals. questionA receiving department compares inventory items received with copies of purchase orders. The purchase orders list the name of the vendor and do not list the quantities of the material ordered. Using the purchase orders, the receiving department is most likely to detect: answerDeliveries for which no purchase order was issued. questionTo measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into: answerCost of good sold. questionWhich of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper? answerTesting the entity's computation of standard overhead rates. questionA client uses a periodic inventory system. One would expect a credit to which of the following accounts at the point of sale? answersales, not inventory questionA client uses a perpetual inventory system. One would expect a credit to which of the following accounts at the point of sale? answersales and inventory questionWhich of the following would an auditor most likely question included in calculation of the overhead rate for a company that manufactures a product? answerSales expense. questionA "bill and hold" scheme is most likely to include: answerRecording of sales items that the company retains as of year-end. questionWhich of the following is an auditor least likely to consider a departure from U.S. generally accepted accounting principles? answerIncluding in inventory items that are consigned out to vendors, but not yet sold. questionWhich of the following is least likely to be an accurate statement concerning characteristics of an audit? answerAn analysis of inventory turnover addresses whether the proper method of determining inventory costs--as contrasted to market values--is being applied. questionWhich of the following is not a reason for the special significance attached by the auditors to the verification of inventories? answerThe existence of inventories is inherently difficult to substantiate. questionWhich of the following is true about the auditors' observation of the client's physical inventory? answerThe auditors' observation addresses the existence assertion. questionIn verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the: answerVendors' invoices. questionIn verifying credits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the: answerShipping documents. questionAn auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly? answerCompleteness. questionThe use of a "blind" purchase order is designed to prevent errors by the: answerReceiving department. questionAn auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all: answerVendor's invoices. questionTo assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor's invoice to: answerThe purchase order. questionWhich of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse? answerCorresponding with the state agency regarding the authenticity of the public warehouse. questionWhich of the following best describes the reason that the auditors record their inventory test counts in the working papers? answerFor subsequent comparison with the completed inventory listing. questionWhich of the following best describes the reason for the auditors' review of the client's cost accounting system? answerTo obtain evidence about the valuation of work-in-process, finished goods, and cost of goods sold. questionEffective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has: answerThe authority to make purchases of requisitioned materials and services. questionPurchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client company, if the company: answerHolds legal title to the merchandise. questionWhich of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items? answerThe storekeeper is responsible for maintenance of perpetual inventory records. questionAn internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? answerSelect and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks. questionA client's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record: answerPurchases questionWhich one of the following procedures would not be appropriate for the auditors in discharging their responsibilities concerning the client's physical inventories? answerSupervising the taking of the annual physical inventory. questionTo best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the: answerPurchase cutoff procedures. questionPurchase cutoff procedures should be designed to test whether all inventory: answerOwned by the company was recorded. questionAfter accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items: answerRepresented by inventory tags are included in the listing. questionThe most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to: answerObserve physical counts of the inventory items. questionTracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that: answerSales billed to customers were actually shipped. questionIn auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified? answerTour the manufacturing plant or production facility. questionWhich of the following is not a part of the auditors' responsibility when a client counts its inventory? answerDetermine which counts they will make and which counts the client will make. questionWhich statement is correct relating to the count of inventory when a company that specializes in taking such counts ("the company") is involved with counting a client's inventory? answerThe auditor should not consider the counts by the company, by themselves, sufficient appropriate audit evidence. 1 of 
Haven't found what you were looking for?