ACCT 4301 Chapter 13 Concepts Pt. 1

An auditor selected items for test counts while observing an entity's physical inventory. The auditor then traced the test counts to the entity's inventory listing. This procedure most likely provided evidence concerning management's assertion of A. Rights and obligations. B. Completeness. C. Existence. D. Valuation.

Completeness

Key segregations of duties in the inventory management process include all of the following except separating: A. Cost accounting from review of variance reports. B. Inventory management from cost accounting. C. Cost accounting from the general ledger function. D. Supervision of physical inventory from inventory management.

Cost accounting from review of variance reports

Shipping orders are forwarded from the revenue process to A. The materials requisitions department. B. Finished goods stores. C. Raw materials stores. D. Inventory management.

Finished goods stores

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

Included in the final inventory schedule

For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end? A. Materials requisitions. B. Production schedules. C. Receiving documents. D. Purchase orders.

Receiving documents

Which of the following best describes the occurrence assertion for inventory? A. Purchase requisitions initiated by authorized personnel. B. Recorded inventory actually exists. C. Inventory properly accumulated from journals and ledgers. D. All inventory is recorded.

Recorded inventory actually exists

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation? A. Vouching the raw materials' costs to vendors' invoices. B. Obtaining confirmation of inventories pledged under loan agreements. C. Reviewing shipping and receiving cutoff activities for inventories. D. Tracing test counts to the entity's inventory listing.

Vouching the raw materials' costs to vendors' invoices

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 physical inventory sheets. The purpose of this procedure is to obtain assurance that A. The final inventory is valued at cost. B. All inventory represented by an inventory tag is listed on the inventory sheets. C. All inventory represented by an inventory tag is bona fide. D. Inventory sheets do not include untagged inventory items.

All inventory represented by an inventory tag is listed on the inventory sheets

Which of the following audit procedures would provide the least reliable evidence that the entity has legal title to inventories? A. Confirmation of inventories at locations outside the entity's facilities. B. Analytical review of inventory balances compared to purchasing and sales activities. C. Observation of physical inventory counts. D. Examination of paid vendors' invoices.

Analytical review of inventory balances compared to purchasing and sales activities

Which of the following departments typically approves purchase requisitions? A. Raw materials stores. B. Cost accounting. C. Inventory management. D. IT.

Inventory management

Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities? A. Inventory cutoff errors. B. Misapplication of LIFO. C. Unreported scrap or spoilage. D. Theft.

Misapplication of LIFO

Auditors are most likely to ensure that no production activity is scheduled prior to A. Determining standard costs. B. Observing physical inventory. C. Completing the book to physical adjustment. D. Determining the amount of consigned inventory.

Observing physical inventory

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory? A. Obsolete inventory. B. New product line where sales exceed production. C. Manufacturing overhead was not allocated to the production process. D. Manufacturing salaries were recorded as administrative expenses.

Obsolete inventory

In a manufacturing company, which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date? A. Testing the computation of standard overhead rates. B. Examining paid vendors' invoices. C. Reviewing direct labor rates. D. Obtaining confirmation of inventories pledged under loan agreements.

Obtaining confirmation of inventories pledged under loan agreements

The safeguarding of inventory most likely includes A. Comparison of the information contained on the purchase requisitions, purchase orders, receiving reports, and vendors' invoices. B. Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count. C. Analytical procedures for raw materials, goods in process, and finished goods that identify unusual transactions, theft, and obsolescence. D. Application of established overhead rates on the basis of direct labor hours or direct labor costs.

Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count

Failure to record inventory in the proper period can affect all of the following accounts except: A. Sales. B. Receivables. C. Cost of Goods Sold. D. Prepaid Expenses.

Prepaid Expenses

An entity'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.

Purchases

If the perpetual inventory records show lower quantities of inventory than the physical count, an explanation of the difference might be unrecorded A. Sales. B. Sales discounts. C. Purchases. D. Purchase discounts.

Purchases

The audit of year-end physical inventories should include steps to verify that the entity's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a A. Sale in the subsequent period. B. Purchase in the current period. C. Sale in the current period. D. Purchase return in the subsequent period.

Sale in the current period

An entity's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record A. Sales. B. Sales returns. C. Purchases. D. Purchase discounts.

Sales

While observing an entity's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the entity's perpetual records. This situation could be the result of the entity's failure to record A. Purchase discounts. B. Purchase returns. C. Sales. D. Sales returns.

Sales returns

Which of the following is not a misstatement related to the occurrence assertion for inventory? A. Consigned goods are included as part of inventory. B. Unauthorized production activity. C. Fictitious inventory. D. Recorded inventory is not on hand because of theft.

Unauthorized production activity

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of A. Valuation. B. Rights and obligations. C. Existence. D. Completeness.

Valuation