AUD 4.4
An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of completeness with respect to: I. Presentation and disclosure. II. Transactions and events. III. Account balances. A. I only. B. II only. C. III only. D. I, II, and III.
Choice "A" is correct. Inspecting loan agreements under which an entity's inventories are pledged provides evidence regarding completeness with respect to presentation and disclosure, since such information must be disclosed in the financial statements. Choices "B", "C", and "D" are incorrect. Inspecting loan agreements under which an entity's inventories are pledged does not provide information regarding the completeness of transactions, events, or account balances.
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? A. Test the computation of standard overhead rates. B. Tour the manufacturing plant or production facility. C. Compare inventory balances to anticipated sales volume. D. Review inventory experience and trends.
Choice "A" is correct. Testing the computation of standard overhead rates relates to the accumulation of costs during the manufacturing process, and not to whether the inventory is slow-moving, defective, or obsolete after manufacture. Choice "B" is incorrect. During a tour of the manufacturing plant or production facility, the auditor should be alert for items that appear to be old, obsolete, or defective. Choice "C" is incorrect. Comparisons of inventory balances with anticipated sales volume might indicate higher inventory levels than would be expected, perhaps due to slow-moving, defective, or obsolete inventory items. Choice "D" is incorrect. Review of inventory experience and trends may indicate slow- moving, defective, or obsolete inventory items. For example, the auditor may notice a particular item that is building up in inventory, or a trend toward reduced sales of that item.
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: A. Represented by tags were included on the listing. B. Included on the listing were properly counted. C. Represented by tags were reduced to the lower of cost or market. D. Included in the listing were properly valued.
Choice "A" is correct. The directional test of tracing is generally used to test completeness. In this case, tracing the inventory tags to the computerized list of inventory items is a test of the completeness of the inventory list. Choice "B" is incorrect. Recalculation would be the step that would help to determine whether items included on the listing were properly counted. Choice "C" is incorrect. Tracing is not relevant to the valuation determination of whether the lower of cost or market adjustment was properly applied. Choice "D" is incorrect. Tracing is not relevant to any valuation determinations.
An auditor concluded that no excessive costs for idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory, including understandability and classification, and: A. Valuation and allocation. B. Completeness. C. Existence. D. Rights and obligations.
Choice "A" is correct. An auditor reviews the overhead allocation to determine that no excessive costs for idle plant were charged to inventory. This is one of the procedures performed by an auditor to determine that the inventory balance is properly valued (assertion of valuation and allocation). Choice "B" is incorrect. Completeness relates to ensuring that all assets, liabilities, and equity interests are properly included in the financial statements. The allocation of overhead costs to inventory does not affect this assertion. Choice "C" is incorrect. Existence relates to whether assets, liabilities, and equity interests exist. The allocation of overhead costs to inventory does not affect this assertion. Choice "D" is incorrect. Rights and obligations pertain to ownership of assets and liabilities. The allocation of overhead costs to inventory does not affect this assertion.
Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation? A. Testing the entity's computation of standard overhead rates. B. Obtaining confirmation of inventories pledged under loan agreements. C. Reviewing shipping and receiving cutoff procedures for inventories. D. Tracing test counts to the entity's inventory listing.
Choice "A" is correct. Testing the entity's computation of standard overhead rates generally provides assurance about a client's inventory valuation. Choice "B" is incorrect. Obtaining confirmation of inventories pledged under loan agreements provides assurance about the appropriate presentation, description, and disclosure of such matters in the financial statements. Choice "C" is incorrect. Reviewing shipping and receiving cutoff procedures for inventories provides assurance about completeness and existence of inventory. Choice "D" is incorrect. Tracing test counts to the entity's inventory listing provides assurance about the completeness of the client's listing. 错误的选项很有意思
The auditor's inventory observation test counts are traced to the client's inventory listing to test for which of the following financial statement assertions? A. Completeness. B. Rights and obligations. C. Allocation and valuation. D. Understandability and classification.
Choice "A" is correct. The auditor should test the physical inventory report by tracing test counts taken by the auditor to the report, thereby verifying its completeness. (猜的) 整理一下其他选项 Choice "B" is incorrect. Tracing from test counts to the client's inventory listing does not test rights and obligations. Rights and obligations might be tested by examining paid vendors' invoices, inspecting consignment agreements and contracts, or by confirming inventory held at outside locations. Choice "C" is incorrect. Tracing from test counts to the client's inventory listing does not test allocation and valuation. Allocation and valuation might be tested by examining paid vendors' invoices, evaluating direct labor rates, recalculating overhead rates, or examining an analysis of inventory turnover. Choice "D" is incorrect. Tracing from test counts to the client's inventory listing does not test understandability and classification. Understandability and classification might be tested by confirming inventories pledged under loan agreements, examining drafts of the financial statements for appropriate balance sheet classification, etc.
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: A. Observe physical counts of the inventory items. B. Trace the total on the inventory listing to the general ledger inventory account. C. Obtain a confirmation from the client indicating inventory ownership. D. Analytically compare the current-year inventory balance to the prior-year balance.
Choice "A" is correct. The auditor's personal observation is generally one of the most reliable forms of evidence. Observing physical inventory counts provides reliable evidence that the inventory actually exists. Choice "B" is incorrect. Tracing totals from the inventory listing to the general ledger inventory account provides evidence of completeness, not existence. Choice "C" is incorrect. A confirmation from the client indicating ownership provides some evidence regarding rights and obligations, but does not provide evidence of existence. Choice "D" is incorrect. Analytical comparisons of current year to prior year inventory balances might provide some evidence regarding completeness, existence, and valuation, but this is not as reliable a procedure for verifying existence as is the auditor's direct personal observation. 这道题目有点特殊, 不要被B 给迷惑了. 我选B的原因: 我原以为是 trace from 账本 到 文件, 存在认定
An auditor generally tests the segregation of duties related to inventory by: A. Personal inquiry and observation. B. Test counts and cutoff procedures. C. Analytical procedures and invoice recomputation. D. Document inspection and reconciliation.
Choice "A" is correct. The independent auditor's direct personal knowledge, based on personal inquiry and observation, are auditing procedures commonly used to test segregation of duties. Choice "B" is incorrect. Test counts and cutoff procedures represent substantive tests, and they would not be used to test segregation of duties. Choice "C" is incorrect. Analytical procedures and invoice recomputation represent substantive tests, and they would not be used to test segregation of duties. Choice "D" is incorrect. Document inspection and reconciliation represent substantive tests, and they would not be used to test segregation of duties. 猜的, 需要整理一下
Which audit procedure is most likely related to the classification and understandability of the financial statements with respect to inventory? A. Confirming inventories pledged under loan agreements. B. Obtaining quotations for the current market value of inventory. C. Examining consignment agreements. D. Analyzing inventory turnover.
Choice "A" is correct. The pledge or assignment of any inventories should be appropriately disclosed in the financial statements. Choice "B" is incorrect. Inventories should be reduced, when appropriate, to replacement cost or net realizable value, but this is more closely related to the valuation of inventory. Choice "C" is incorrect. Consignment agreements should be examined to ensure that the entity has ownership rights to the inventory (and does not include inventory owned by others), but this relates to the rights and obligations assertion, not to classification and understandability assertions. Choice "D" is incorrect. Inventory turnover is analyzed as a means of identifying slow- moving, excess, defective, or obsolete items included in inventory, but this relates more closely to the valuation of inventory.
A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably: A. Increase the extent of tests of controls of the inventory cycle. B. Request the client to schedule the physical inventory count at the end of the year. C. Insist that the client perform physical counts of inventory items several times during the year. D. Apply gross profit tests to ascertain the reasonableness of the physical counts.
Choice "B" is correct. The assessment of control risk affects the nature, timing, and extent of substantive audit procedures. If the assessed level of control risk is high, the auditor would generally request that the client schedule the inventory at the end of the year. Choice "A" is incorrect. If the assessed level of control risk is high, an auditor would probably increase the extent of substantive testing, not the extent of tests of controls. Choice "C" is incorrect. Client performance of physical counts is an effective internal control, but requesting multiple inventory counts through the year is not an appropriate reaction to the auditor's assessment of control risk as high. The assessment of control risk affects the nature, timing, and extent of substantive audit procedures. Choice "D" is incorrect. The assessment of control risk affects the nature, timing, and extent of substantive audit procedures. Given the high assessment of control risk, the auditor would prefer more effective substantive procedures; analytical procedures are generally less effective.
An insignificant 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? A.Observation. B.Confirmation. C.Calculation. D. Inspection.
Choice "B" is correct. The auditor should observe the physical inventory count of goods held in public warehouses if the inventory held therein is significant; otherwise, confirmation of such inventory is sufficient. Choice "A" is incorrect. Although observation would provide the more effective evidence of existence, it would generally not be the most efficient and should only be done if the inventory is significant. Choice "C" is incorrect. Calculation is generally not a step performed to determine existence of inventory. Choice "D" is incorrect. Inspection of inventory, like observation, would provide the more effective evidence of existence; it would generally not be the most efficient method and should only be done if the inventory is significant.
Which of the following control objectives is achieved by reviewing and testing control procedures over physical inventory count? A. Validation of purchase transactions. B. Verification of existence of inventory. C. Authorization of the manufacturing orders. D. Posting and summarization of inventory transactions.
Choice "B" is correct. The control objective of verification of the existence of inventory is achieved when reviewing and testing control procedures over the physical inventory count. In a physical inventory count, the auditor inspects the inventory to verify its existence and condition. Choice "A" is incorrect. The control objective of validation of the purchase transaction objective would not be achieved by reviewing and testing control procedures related to the physical inventory count. Purchase (and sale) transactions do not typically occur during a physical inventory count, and therefore are unlikely to be part of the control procedures and testing for the physical inventory count. Choice "C" is incorrect. The control objective of authorization of manufacturing orders would not be achieved by reviewing and testing control procedures related to the physical inventory count. The testing of proper authorization of manufacturing orders would occur as a separate test, not during the physical inventory count. 我以为 test of control 是 authorization Choice "D" is incorrect. The control objective of posting and summarization of inventory transactions would not be met by reviewing and testing control procedures related to the physical inventory count. Generally, no inventory transactions (i.e., purchases or sales) occur during the physical count.
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 assertion of: A. Rights and obligations. B. Completeness. C. Existence. D. Valuation.
Choice "B" is correct. When an auditor selects items for test counts and traces the test counts to the client's inventory listing, the auditor has obtained evidence concerning management's assertion of completeness (All inventory on hand has been properly included in the physical listing.) Choice "A" is incorrect. The assertion of rights and obligations would be tested by examining paid vendor's invoices, consignment agreements, and contracts. Choice "C" is incorrect. The assertion of existence would be supported by selecting from a sample of inventory items included in the physical listing and tracing to the floor to determine that the inventory was actually on hand. (Note how changing the direction of testing provides evidence for different assertions.) Choice "D" is incorrect. Valuation pertains to presentation of balances at their appropriate amounts, whereas tracing test counts to the client's inventory listing relates to the testing of inventory quantities (completeness). 把选项整理一下
Which is true about the auditor's observation of physical inventory counts? I.It can provide evidence supporting the existence assertion. II. It can provide evidence supporting the completeness assertion. A. I only. B. II only. C. Both I and II. D. Neither I nor II are true.
Choice "C" is correct. Observation of physical inventory counts provides evidence about both existence and completeness. Observing the inventory provides evidence that it physically exists; observing the actual count provides evidence regarding completeness (i.e., does it appear that the client is doing a careful, accurate, and complete job of counting all of the inventory?).
To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would trace: A. Inventory tags noted during the auditor's observation to items listed in the inventory-listing schedule. B. Inventory tags noted during the auditor's observation to items listed in receiving reports and vendors' invoices. C. Items listed in the inventory-listing schedule to inventory tags and the auditor's recorded count sheets. D. Items listed in receiving reports and vendors' invoices to the inventory-listing schedule.
Choice "C" is correct. Tracing from the inventory schedule to the inventory tags and the auditor's recorded count sheets verifies the validity (existence) of the items. Note that the correct term for the directional test for existence is "vouch." However, in practice (and on the CPA Exam), the term trace is sometime used interchangeably with the term vouch. 不会做 Choice "A" is incorrect. Tracing from inventory tags to the inventory listing schedule verifies the completeness of the schedule, not the existence (or validity) of the items. Choice "B" is incorrect. Tracing to receiving reports and to vendors' invoices from the inventory tags might be used to verify completeness of purchases or payables. Choice "D" is incorrect. Tracing from receiving reports and vendors' invoices to the inventory listing are cutoff procedures used to verify completeness of the inventory listing.
While observing a client'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 client's perpetual records. This situation could be the result of the client's failure to record: A. Purchase discounts. B. Purchase returns. C. Sales. D. Sales returns.
Choice "D" is correct. Failure to record sales returns would result in actual inventory quantities being greater than those recorded in the perpetual inventory records. Choice "A" is incorrect. Failure to record purchase discounts would result in a difference in recorded costs, rather than recorded quantities. Choice "B" is incorrect. Failure to record purchase returns would result in actual inventory quantities being less than those recorded in the perpetual inventory records. Choice "C" is incorrect. Failure to record sales would result in actual inventory quantities being less than those recorded in the perpetual inventory records.
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? A. The entity has rights to the inventory. B. Inventory is properly valued. C. Inventory is properly presented in the financial statements. D. Inventory is complete.
Choice "D" is correct. In order to determine whether the actual inventory on hand is reflected in the ending inventory balance by the client, the auditor would test the completeness of inventory. This is done in conjunction with inventory observation, through testing the physical inventory report by tracing test counts to the report to verify that reported inventory is complete. Choice "A" is incorrect. The verification of legal right to the inventory is not a test that would satisfy this audit objective. Choice "B" is incorrect. Testing whether management properly valued its inventory would not satisfy the audit objective, but testing for completeness would. Choice "C" is incorrect. Testing for this management assertion would not satisfy the audit objective because inventory can be properly presented in the financial statements without the inventory amounts being accurate.
Which of the following procedures would be most appropriate for testing the completeness assertion as it applies to inventory? A. Scanning perpetual inventory, production, and purchasing records. B. Examining paid vendor invoices. C. Tracing inventory items from the tag listing back to the physical inventory quantities. D. Performing cutoff procedures for shipping and receiving.
Choice "D" is correct. Performing cutoff procedures provides assurance that goods in transit (shipped or received) are appropriately included or excluded from inventory and this procedure is most appropriate for testing the completeness assertion. Choice "A" is incorrect. Scanning perpetual inventory, production, and purchasing records would only include transactions that have been recorded. The completeness assertion is focused on unrecorded transactions. Choice "B" is incorrect. Examining paid vendor invoices would exclude invoices from vendors for goods received but not yet billed by the vendor. Choice "C" is incorrect. Tracing items from the tag listing back to the physical inventory quantities is a test for the existence of the inventory on the tag listing. For the completeness assertion, the auditor should trace from the physical inventory quantities to the tag listing.
To obtain assurance that all inventory items in a client's inventory listing are valid, an auditor most likely would trace: A. Inventory tags noted during the auditor's observation to items listed in receiving reports and vendors' invoices. B. Items listed in receiving reports and vendors' invoices to the inventory listing. C. Inventory tags noted during the auditor's observation to items in the inventory listing. D. Items in the inventory listing to inventory tags and the auditor's recorded count sheets.
Choice "D" is correct. Tracing from the inventory listing to the inventory tags and the auditor's recorded count sheets verifies the validity (existence) of the items. 不清楚, 这个 tag 到底怎么用 Choice "A" is incorrect. Tracing inventory tags noted during the auditor's observation to items listed in receiving reports and vendors' invoices might be used to verify completeness of purchases or payables. Choice "B" is incorrect. Tracing from receiving reports and vendors' invoices to the inventory listing are cut-off procedures used to verify completeness of the inventory listing. Choice "C" is incorrect. Tracing from inventory tags to the inventory listing schedule verifies the completeness of the schedule, not the existence (or validity) of the items.
Which of the following internal controls most likely would be used to maintain accurate inventory records? A. Perpetual inventory records are periodically compared with the current cost of individual inventory items. B. A just-in-time inventory ordering system keeps inventory levels to a desired minimum. C. Requisitions, receiving reports, and purchase orders are independently matched before payment is approved. D. Periodic inventory counts are used to adjust the perpetual inventory records.
Choice "D" is correct. In order to maintain accurate perpetual inventory records, periodic inventory counts should be used to adjust perpetual records. Choice "A" is incorrect. By comparing perpetual inventory records to current costs, the company ensures that the inventory is appropriately valued at the lower of cost or market, but the accuracy of the perpetual inventory is not assured. Choice "B" is incorrect. While a just-in-time inventory system will usually reduce the amount of inventory on hand, it does not necessarily improve the accuracy of inventory records. Choice "C" is incorrect. The matching of requisitions, receiving reports, and purchase orders is a control to ensure that purchases of inventory are properly authorized, but it does not necessarily improve the accuracy of inventory records.
Under which of the following conditions may an auditor's observation procedure for inventory be performed during or after the end of the period under audit? A. When the client maintains periodic inventory records. B. When the auditor finds minimal variations in client records and test counts in prior periods. C. When total inventory has not varied more than 5% in the last five years. D. When well-kept perpetual inventory records are checked by the client periodically by comparisons with physical counts.
Choice "D" is correct. Interim testing is permitted when the risk of material misstatement is low. An entity has strong internal control over inventory and therefore low risk of material misstatement if the entity has well kept perpetual inventory records that are checked periodically by comparisons with physical counts. In this situation, the auditor could elect to perform the inventory observation at an interim date during the period under audit, or after year-end. If the inventory observation is performed at an interim date, the perpetual inventory records would allow the auditor to gather evidence regarding changes to inventory between the interim date and year-end. 猜的, 因为 D 选项 最长 Choice "A" is incorrect. Interim testing is generally not appropriate when an entity maintains periodic inventory records because periodic inventory records are only updated on the date when a physical inventory is taken and the books are adjusted to actual. Subsequent transactions to inventory (purchases and sales) are not recorded in the inventory account. If the inventory observation was performed at an interim date, periodic inventory records would not allow the auditor to gather evidence regarding changes to inventory between the interim date and year-end. Choice "B" is incorrect. The auditor cannot rely upon the results of substantive procedures performed in prior years when conducting an audit in the current year. Choice "C" is incorrect. Whether or not total inventory has not varied more than 5% in the last five years is irrelevant to whether the auditor's observation procedure for inventory be performed during or after the end of the period under audit.
