Auditing Chapter 9

Cycle counts ______.

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

A specification of the type and quantity of components required for production is found on the ______.

bill of materials

The source of authorization for preparation of materials requisitions is

bill of materials

Physical observation procedures are designed to audit for ______ and _______.

existence completeness

The most significant risks in the production cycle often relate to the ______ and _______ of inventory.

existence valuation

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

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

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______ ,______ ,_______ and of substantive procedures that will be performed in the audit of inventory.

nature timing extent

Ghost, CPA selected an invoice for a large inventory purchase and vouched the invoice to the receiving report. Which assertion is the auditor most likely testing?

occurrence

The overall production authorization starts with a

production plan

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 all 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 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.

exisitence

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

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

false

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

goods in transit (purchased but not yet received) were included in goods in the perpetual records but not owned were excluded from

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

goods on hand that have been sold were excluded from consigned-out goods were included in goods on hand were counted and included in

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

has no impact on

Sales forecasts ______.

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

Hiring and firing employees is a function that should be performed by

human resources

The use of scanner and computers ______.

improves accuracy improves efficiency

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.

occurrence

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

overall tests for reasonable should be performed

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.

perpetual

The acquisition cycle is linked to the revenue cycle through the _____ cycle.

production

The acquisition cycle is linked to the revenue cycle through the ______cycle.

production

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

production acquisition revenue

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

production planner

Which of the following is not recognized by GAAP as appropriate for determining inventory cost?

standard costs

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 tickets

The pricing and compilation tests audit for ______.

valuation

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

accuracy

Client's inventory instructions should include all the following except

Instructions for auditors' test counts.

Inventory should be recorded when

The company has title to it.

Responsibility for the physical inventory count lies with the

client

The overall physical inventory count is generally taken by ______.

company personnel

After inventory has been counted, the client summarizes the count by item number and applies a chosen costing method to determine the total inventory owned, which is compared with the amount in the general ledger. This step is normally referred to as the ______ and _____ procedure.

compilation pricing

Instructions for auditors' test counts.

completeness

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: _______ and ______.

completeness occurrence

Because it governs the nature, timing, and extent of substantive procedures that will be performed in the audit of inventory, _____ ______ assessment is important.

control risk

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

cost of good sold

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

cost of goods sold

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

cutoff

A client maintains perpetual inventory records in both quantities and dollars. If the auditor is able to accept a high level of detection risk, the auditor would probably

Apply gross profit tests to ascertain he reasonableness of the physical inventory counts.