Auditing CH 12

To assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor's invoice to: A. The purchase requisition B. The purchase order C. The receiving order D. The voucher

The purchase order

The proper cutoff of inventories is best achieved when the client uses prenumbered purchase orders

False

The examination of warehouse receipts is not sufficient verification of a material amount of goods stored in public warehouses.

True

The lower-of-cost-or-market test by the auditors is generally designed to assure that inventories are not valued above their net realizable values.

True

The receiving department should accept only goods for which there is an approved purchase order on hand

True

The use of a tagging system for inventory taking is designed to prevent double counting of goods.

True

When the auditors cannot satisfy themselves as to the accuracy of ending inventory and a material misstatement may exist, they normally may still give an unmodified (unqualified) opinion on the client's income statement.

False

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers? A. To document every test count B. To document compliance with the completed inventory listing C. For subsequent comparison with the completed inventory listing D. For use in subsequent audits

For subsequent comparison with the completed inventory listing

An 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? A. Existence B. Legality C. Valuation D. Completeness

Completeness

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. Observation C. Corresponding with the state agency regarding the authenticity of the public warehouse D. Obtaining reports on internal control at the warehouse

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

Auditors should not review the client's planning of the physical inventory.

False

Purchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client company, if the company: A. Holds legal total to the merchandise B. Has physical possession of the merchandise C. Has paid for the merchandise D. Holds the shipping documents for the merchandise issued on the company's name

Holds legal title to the merchandise

The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are: A. Included in the final inventory schedule B. Owned by the client C. Physically present at theme of the preparation of the final inventory schedule D. Not obsolete

Included in the final inventory schedule

Which of the following is true about the auditors' observation of the client's physical inventory? A. The auditors should justify any omission of the observation in the audit report. B. The count must be made at year-end C. The auditors observation dresses the existence assertion D. The auditors should supervise the clients personnel

The auditors observation addresses the existence assertion

Which of the following is not true relating to the auditors' observation of the client's physical inventory? A. The auditors should evaluate the client's planning of the physical inventory B. The auditors should take test counts of the client's inventory. C. The auditors should make certain that consigned items from suppliers are included in physical inventory totals D. The auditors should evaluate the adequacy of the client's counting procedures

The auditors should make certain that consigned items from suppliers are included in physical inventory totals

In verifying debits to perpetual inventory records of a nonmanufacturing firm, the auditor would be most interested in examining the: A. Vendors invoices B. Purchases journal C. Purchase orders D. Purchase requisitions

Vendors invoices

Observation of inventories is a required audit procedure under all circumstances.

False

For good internal control over purchase transactions, purchases should be made from approved vendors by the department needing the goods.

False

The use of a "blind" purchase order is designed to prevent errors by the: A. Purchase department B. Stores Department C. Accounting department D. Receiving department

Receiving department

To 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.

True