Audit Chapter 12

A client uses a perpetual inventory system. One would expect a credit to which of the following accounts at the point of sale? a. (yes) sales and (yes) inventory b. (yes) sales and (no) inventory c. (no) sales and (yes) inventory d. (no) sales and (no) inventory

a. (yes) sales and (yes) inventory

An 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: a. Cash disbursements. b. Approved vouchers. c. Receiving reports. d. Vendors' invoices.

a. Cash disbursements.

To measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into: a. Net sales. b. Cost of good sold. c. Operating income. d. Gross sales.

b. Cost of good sold.

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.

b. Receiving reports.

Which of the following best describes the reason for the auditors' review of the client's cost accounting system? a. To obtain evidence regarding the quantities of good described as work-in-process. b. To obtain evidence about the valuation of work-in-process, finished goods, and cost of goods sold. c. To obtain evidence about the profit margin on specific jobs. d. To obtain evidence about compliance with Cost Accounting Standards.

b. To obtain evidence about the valuation of work-in-process, finished goods, and cost of goods sold.

An 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: a. Merchandise received. b. Vendor's invoices. c. Canceled checks. d. Receiving reports.

b. Vendor's invoices.

A 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: a. Sales. b. Sales discounts. c. Purchases. d. Purchase returns.

c. Purchases.

Which of the following is true about the auditors' observation of the client's physical inventory? a. The count must be made at year-end. b. The auditors should supervise the client's personnel. c. The auditors' observation addresses the existence assertion. d. The auditors should justify any omission of the observation in the audit report.

c. The auditors' observation addresses the existence assertion.

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items? a. Supplies of relatively little value are expensed when purchased. b. The cycle basis is used for physical counts. c. The storekeeper is responsible for maintenance of perpetual inventory records. d. Perpetual inventory records are maintained only for items of significant value.

c. The storekeeper is responsible for maintenance of perpetual inventory records.

Which 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? a. Confirmation. b. Obtaining reports on internal control at the warehouse. c. Observation. d. Corresponding with the state agency regarding the authenticity of the public warehouse.

d. Corresponding with the state agency regarding the authenticity of the public warehouse.