Chapter 12

The assertion most directly addressed when performing the search for unrecorded liabilities is:

Completeness.

The receiving department is least likely to be responsible for the:

Preparation of a shipping document.

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?

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

The organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the:

Cost Accounting Standards Board.

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers?

For subsequent comparison with the completed inventory listing.

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory?

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

The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to:

Observe physical counts of the inventory items.

The primary objective of a CPA's observation of a client's physical inventory count is to:

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

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?

Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.

In verifying credits to perpetual inventory records of a nonmanufacturing firm, the auditor would be most interested in examining the:

Shipping documents.

The auditor's analytical procedures will be facilitated if the client:

Uses a standard cost system that produces variance reports.

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address:

Valuation.

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably:

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

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:

Well-kept records of perpetual inventory are maintained.

Which of the following is least likely to be an accurate statement concerning characteristics of an audit?

An analysis of inventory turnover addresses whether the proper method of determining inventory costs-as contrasted to market values-is being applied.

The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the:

Bill of lading.

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:

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

In auditing long-term debt, an auditor would be most likely to:

Compare interest expense with the long-term debt amount for reasonableness.

Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold?

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

When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is:

Existence

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:

Included in the final inventory schedule.

Which of the following is an auditor least likely to consider a departure from U.S. generally accepted accounting principles?

Including in inventory items that are consigned out to vendors, but not yet sold.

For which of the following accounts is it most likely that most of the audit work can be performed in advance of the balance sheet date?

Property, plant, and equipment.

To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the:

Purchase cutoff procedures.

A client'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:

Purchases

A client'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:

Purchases.

After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items:

Represented by inventory tags are included in the listing.

The client's physical count of inventories is lower than the inventory quantities in the perpetual records. This could be the result of a failure to record:

Sales

Tracing copies of computer-generated sales invoices to copies of the corresponding computer-generated shipping documents provides evidence that:

Sales billed to customers were actually shipped.

Which of the following is true about the auditors' observation of the client's physical inventory?

The auditors should evaluate the adequacy of the client's counting procedures.

Which of the following is not true relating to the auditors' observation of the client's physical inventory?

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

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?

The storekeeper is responsible for maintenance of perpetual inventory records.

In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified?

Tour the manufacturing plant or production facility.