Exam 3 - Ch 9 Production Cycle Questions

The release of raw materials and supplies to production is authorized by a

materials requisition

Effect of December purchase recorded in January on inventory and cost of sales accounts

understated; no effect

Effect of unrecorded receipt of inventory on inventory and cost of sales accounts

understated; no effect

Effect of consigned-out inventory omitted during physical count

understated; overstated

Holding supervisors accountable for production is an important component of control over ________ inventory

work in process

To make a year-to-year comparison of inventory turnover most meaningful, the auditor performs the analysis

By Product

When the auditors were not present for the count of beginning inventory they must _______ opinion on the income statement

disclaim an

Selecting items from a perpetual inventory record and obtaining a test count can be done to produce evidence for the ___________ balance assertion

existence

Which of the following would not be an example of an inventory record error or fraud?

incorrect sales price.

The person in charge of planning should

not have custody of inventories or any record-keeping duties

All additions and reductions of inventory are accounted for in the payroll, ________, ____________, and _________ cycles

production, acquisition, revenue

The production planner uses the _______ to determine if there is sufficient stock to complete production

raw material inventory status report

Descriptions of significant deficiencies, control weaknesses, and inefficiencies must be communicated to

the audit committee

The pricing and compilation tests audit for _______

valuation

The most difficult inventory control issues relate to ______

work in process

A retailer's physical count of inventory was higher than that shown by the perpetual records. Which of the following could explain the difference?

credit memos for several items returned by customers had not been recorded

Physical observation procedures are designed to audit for _______ and ________

existence and completeness

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

existence and valuation

Fraudulent inventory accounting may be uncovered by comparing current year _______ to that of prior years

gross margin

Effect of December sales recorded in January on inventory and cost of sales accounts

no effect; no effect

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

Effect of unrecorded shipment of inventory on inventory and cost of sales accounts

overstated; understated

The acquisition cycle is linked to the revenue cycle through the _______ cycle

production

The schedule for manufacturing designed to ensure quality goods are available at the appropriate time for the lowest cost is called the

production plan

Auditors must verify that items held on consignment are not included in inventory to address the _______ assertion

rights

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

Production activities start a marketing projection based on past performance and marketing initiatives called a ______ ________

sales forecast

Effect of inventory omitted during physical count on inventory and cost of sales accounts

understated; overstated

The auditor tests the quantity of materials charged to work-in-process by vouching these quantities to

Material requisitions.

A cutoff test reveals goods received and counted in inventory but not recorded in purchases. The effect on the financial statements is

Net income is overstated.

Valuation issues related to the inventory account include

- Obsolete inventory - GAAP accounting used - accurate recording

The headings on an Internal Control Questionnaire for the production cycle typically include _________

- accuracy - existence - completeness - cutoff - classification

When auditing inventories, an auditor would least likely verify that

All inventory owned by the client is on hand at the time of the count

A portion of a client's inventory is in public warehouses. Evidence of the existence of this merchandise can most efficiently be acquired through which of the following methods?

Confirmation

When testing a company's cost accounting system, the auditor uses procedures that are primarily designed to determine that

Costs have been properly assigned to finished goods, work-in-process, and cost of goods sold.

An auditor usually traces the details of the test counts made during the observation of physical inventory counts to a final inventory compilation. 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

Included in the final inventory schedule

Which of the following auditing procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?

Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens.

Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance?

Inventory is complete.

The purpose of tracing a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items

Represented by tags were included on the listing.

Your client counts inventory three months before the end of the fiscal year because controls over inventory are excellent. Which procedure is not necessary for the roll-forward?

Request the client to recount inventory at the end of the year.

A client maintains perpetual inventory records in quantities and in dollars. If the assessed control risk is high, an auditor would probably

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

Auditors must ensure that cost of goods sold includes all applicable cost at the proper amounts. This addresses the _______ assertion

accuracy

From the auditors' point of view, inventory counts are more acceptable prior to the year-end when

accurate perpetual inventory records are maintained

An increase in inventory turnover probably indicates

an improvement in inventory management.

The documents that authorize the inventory record keepers to update the raw material inventory files are the

- production order - materials requisition

Observation can be used to help determine

- separation of duties in the inventory area - proper inventory authorizations - physical controls over inventory

An auditor is examining a nonpublic company's inventory procurement system and has decided to perform tests of controls. Under which of the following conditions do GAAS require tests of controls be performed by an auditor?

The auditor believes that testing the controls could lead to a reduction in overall audit time and cost.

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's balance assertions about

Valuation and allocation.

The overall physical inventory count is generally taken by

company personel

An auditor selected items for test counts while observing a client's physical inventory. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's balance assertion of

completeness

Tracing items from the inventory floor to the inventory records produces evidence for the _________ balance assertion

completeness

Test of controls are designed to test production accounting in two directions: _______ and _______

completeness and occurrence

Tracing a sample of inventory receiving reports to the perpetual inventory record entry achieves the specific ASB balance assertion of

completeness.

The compilation and pricing procedure compares the inventory amount in the general ledger to

counted items at standard cost