Audit practice 3

True or false: Inventory roll-forward procedures are required if inventory is counted either before or after the balance sheet date.

FALSE

Cycle counts ______.

assist with maintaining accurate perpetual inventory records require the auditors' presence at some of the counts only

When the auditor is satisfied that controls have been examined and transactions and balances are fairly presented according to GAAP, the audit ______

focus must move to required disclosures

After observation is complete, auditors should have sufficient appropriate evidence that ______ the inventory compilation.

goods in the perpetual records but not owned were excluded from goods in transit (purchased but not yet received) were included in consigned-out goods were included in goods on hand that have been sold were excluded from goods on hand were counted and included in

if the auditor decides to perform tests of controls over inventory they will often include ______.

inspection/ observation

Auditors generally ______.

make test counts of inventory

The release of raw materials and supplies to production is authorized by a ______.

materials requisition

The documents that authorize the inventory record keepers to update the raw material inventory files are the ______.

materials requisition production order

If auditors were not present for the count of beginning inventory, and cannot perform alternative procedures to provide evidence the number is not materially misstated they ______.

may have concerns about statement of cash flows

Control risk assessment is important because it governs the____ ____ _____of substantive procedures that will be performed in the audit of inventory.

nature, timing, extent

If auditors want to use a sales forecast for audit decisions ______.

overall tests for reasonable should be performed

All additions and reductions of inventory are accounted for in the payroll,

produciton, acquisition, revenue

The acquisition cycle is linked to the revenue cycle through the

production cycle

One of the most critical jobs in any manufacturing operation is ______.

production planner

The production planner uses the ______ to determine if there is sufficient stock to complete production

raw material inventory status report

Inventory disclosures must ensure that the presentation and disclosure assertions of occurrence,_____ and obligations _____ classification and understandability, and accuracy and ___ are met

rights / completeness / valuation

If there is an intervening period between the count date and year-end, additional inventory ______ auditing procedures must be performed on transactions during that period.

roll / forward

If it is incorrect and either underestimates or overestimates product demand, the cost to the company can be in the millions, which is why the _____is one of the most important documents in any organization

sales forecast

Production activities start a marketing projection based on past performance and marketing initiatives called a(n)

sales forecast

True or false: The tests of controls an auditor performs is highly dependent on the type of company and the type of inventory.

true

Physical counts of selected inventory throughout the year are called

cycle counts

When the auditors were not present for the count of beginning inventory they must ______ opinion on the income statement.

disclaim an

Auditors must verify that items included in inventory were in inventory on the balance sheet date to address the ______ assertion.

existence

Physical observation procedures are designed to audit for _____ and

existence / completeness

Selecting items from a perpetual inventory record and obtaining a test count can be done to produce evidence for the ____balance assertion, while tracing items from the inventory floor to the inventory records produces evidence for the ________balance assertion.

existence / completeness

The most significant risks in the production cycle often relate to the _____ and ___ of inventory

existence / valuation

The use of scanner and computers ______ the number of inventory counts required.

has no impact on improves efficiency improvers accuracy

Sales forecasts ______.

help auditors understand management's strategy can be used in valuing inventory

When performing tests of controls, auditors are interested in determining that WIP and finished good inventory items were actually produced as part of the ______ direction.

ocurrence

To prevent the client from adding inventory items by creating more at a later date, it is critically important to know which____or count sheets were or were not used.

tag / numbers

The materials requisition is also called a materials

transfer ticket

The pricing and compilation tests audit for ______.

valuation

GAAS requires auditors to be present to observe the client's physical inventory count ______.

when inventory is significant

A record of all counts must be obtained and used for the existence-direction tests if a company does not maintain ______ inventory records.

PERPETUAL

Auditors must ensure that cost of goods sold has been properly accounted for using an acceptable GAAP method. This addresses the

accuracy

The overall physical inventory count is generally taken by ______.

company personnel

When performing tests of controls, auditors are interested in determining that all production that was started was recorded as part of the ______ direction.

completeness

Tests of controls are designed to test production accounting in two directions:

completeness / occurrence

Significant risk in the production cycle relates to the correct valuation of ______.

cost of goods sold

Differences between the inventory count and the perpetual records are adjusted by increasing or decreasing ______.

costs of goods sold

Examining shipping and receiving documents issued before and after the manual physical inventory count is an important

cutoff procedure