Ch. 12 HW/Quiz

1. can issue an unqualified opinion without disclosing that she did not observe year-end inventories

McPherson 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: 1. can issue an unqualified opinion without disclosing that she did not observe year-end inventories 2. should comment in the scope paragraph as to her inability to observe year-end inventories, but can nevertheless issue an unqualified opinion 3. is required, if the inventories are material, to disclaim an opinion on the financial statements taken as a whole 4. should, if the inventories are material, qualify her opinion

b. yes no

a client uses a periodic inventory system. would one expect a credit to which of the following accounts at the point of sales? Sales Inventory a. yes no b. yes no c. no yes d. no no

b. deliveries for which no purchase order was issued

a 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: a. partial deliveries b. deliveries for which no purchase order was issued c. deliveries of a greater quantity of items than those ordered d. unapproved sales orders

d. completeness

an auditor has accounted for a sequence of inventory tags and is now going to trace info on a representative number of tags to the inventory summary sheets. which assertion does this procedures relate to most directly? a. valuation b. legality c. existence d. completeness

4. valuation

an auditor most likely would analyze inventory turnover rates to obtain evidence about: 1. existence 2. rights 3. presentation 4. valuation

3. existence

an auditor selects items from the client's inventory listing and identifies the items in the warehouse. this procedure is most likely related to: 1. rights 2. completeness 3. existence 4. valuation

c. cash disbursements

an auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase of 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 related vouchers. in gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: a. approved vouchers b. vendors' invoices c. cash disbursements d. receiving reports

d. included in the final inventory schedule

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. not obsolete b. physically present at the time of the preparation of the final inventory schedule c. owned by the client d. included in the final inventory schedule

1. Cost Accounting Standards Board

the organization established by Congress to narrow the options in cost accounting that are available under GAAP is the: 1. Cost Accounting Standards Board 2. FASB 3. PCAOB 4. SEC

2. obtain direct knowledge that the inventory exists and has been properly counted

the primary objective of a CPA's observation of a client's physical inventory count is to: 1. discover whether a client has counted a particular inventory item or group of items 2. obtain direct knowledge that the inventory exists and has been properly counted 3. provide an appraisal of the quality of the merchandise on hand on the day of the physical count 4. allow the auditor to supervise the conduct of the count in order to obtain assurance that inventory quantities are reasonable accurate

3. preparation of a shipping document

the receiving department is least likely to be responsible for the: 1. determination of quantities of goods received 2. detection of damaged or defective merchandise 3. preparation of a shipping document 4. transmittal of goods received to the store's department

1. want the client to schedule the physical inventory count at the end of the year

when perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: 1. want the client to schedule the physical inventory count at the end of the year 2. insist that the client perform physical counts of inventory items several times during the year 3. increase the extent of tests for unrecorded liabilities at the end of the year 4. have to disclaim an opinion on the income statement for that year

b. the auditors should satisfy themselves as to the statistical validity of the technique, and the reasonableness of the allowance for sampling risk and sampling error used

which of the following be describes the auditors' response to a client's use of statistical sampling techniques to estimate the inventory? a. the auditors should withdraw from the engagement b. the auditors should satisfy themselves as to the statistical validity of the technique, and the reasonableness of the allowance for sampling risk and sampling error used c. the auditors should increase the extent of their test counts to compensate for the use of a statistical technique d. the auditors should qualify their opinion, because the client must perform a complete count of the inventory

3. establish that the client includes only inventory on hand at year-end in inventory totals

which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? 1. determine that the valuation of inventories and cost of goods sold is arrived at by appropriate methods 2. determine the existence of inventories and the occurrence of transactions affecting cost of goods sold 3. establish that the client includes only inventory on hand at year-end in inventory totals 4. establish the completeness of inventories

c. the direction of tests for understatement errors is generally directed from the recorded entry to source documents

which of the following is least likely to be an accurate statement concerning characteristics fo an audit? a. characteristics of the double entry bookkeeping system make it possible to test for overstated sales when tests of accounts receivable are being performed b. an analysis of inventory turnover can indicate possible obsolescence of inventory c. the direction of tests for understatement errors is generally directed from the recorded entry to source documents d. use of a perpetual rather than a periodic inventory system is likely to affect the nature of cutoff errors made at year-end

2. observe merchandise and raw materials during the client's physical inventory taking

which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? 1. compare the physical quantities of slow-moving items with corresponding quantities in the prior year 2. observe merchandise and raw materials during the client's physical inventory taking 3. review the management's inventory representations letter for accuracy 4. test overall fairness of inventory values by comparing the company's turnover ration with the industry average

b. the auditors should evaluate the condition of inventory

which of the following is true about the auditors' observation of the client's physical inventory? a. the auditors should segregate damaged and obsolete goods b. the auditors should evaluate the condition of inventory c. the auditors should supervise the client's personnel d. the auditors should plan the physical inventory

a. supervising the taking of the annual physical inventory

which one of the following procedures would not be appropriate for the auditors in discharging their responsibilities concerning the client's physical inventories? a. supervising the taking of the annual physical inventory b. confirmation of goods in the hands of public warehouses c. obtaining written representation from the client as to the existence, quality, and dollar amount of the inventory d. carrying out physical inventory procedures at an interim date

1. valuation

an 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: 1. valuation 2. completeness 3. existence 4. rights

1. valuation

an auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: 1. valuation 2. rights 3. existence 4. presentation

2. completeness

during 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: 1. rights 2. completeness 3. existence 4. valuation

d. the authority to make purchases of requisitioned materials and services

effective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has: a. the ability to prepare payment vouchers based on the info on a vendor's invoice b. a direct reporting of responsibility to controller of the organization c. the responsibility of reviewing purchase orders issued by user department d. the authority to make purchases of requisitioned materials and services

d. vendors' invoices

in verifying debits to perpetual inventory records of a nonmanufacturing firm, the auditor would most be interested in examining the: a. purchases journal b. purchase orders c. purchase requisitions d. vendors' invoices

1. well-kept records of perpetual inventory are maintained

instead 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: 1. well-kept records of perpetual inventory are maintained 2. inventory is slw-moving 3. computer error reports are generated for missing prenumbered inventory tickets 4. obsolete inventory items are segregated and excluded

1. bill of lading

the document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: 1. bill of lading 2. job time shipping 3. production order 4. production schedule

1. existence

when a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: 1. existence 2. completeness 3. clarity 4. presentation

b. testing the entity's computation of standard overhead rates

which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper? a. reviewing a cutoff procedures for inventories b. testing the entity's computation of standard overhead rates c. tracing the test counts to the entity's inventory listing d. obtaining confirmation of inventories pledged under loan agreements