Audit Chapter 12

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 receiving department in least likely to be responsible for the:

Preparation of a shipping document.

The accounting firm's computer assisted audit specialist obtained an electronic inventory file from the company and checked the accuracy of the extensions and footings.

Recalculation

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.

The auditor asked the warehouse manager about whether certain inventory items were becoming obsolete.

Inquiry

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.

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 examinations, Mullins:

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

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.

The auditor obtained a copy of the company's accounting manual and read the section on inventory to prepare for the physical inventory observation.

Inspection of records or documents

The auditor obtained a purchase order from the purchase order file and compared it to the authorized supplier list to determine that the related goods had been purchased from an approved supplier.

Reperformance

Instead of taking 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.

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

Existence.

During a site visit to a construction site, the auditor determined that all employees were wearing proper safety equipment.

Observation

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

Bill of lading.

During the physical inventory count, the auditor asked the client to open various boxes of inventory items so she was able to assess the quality of the item.

Inspection of tangible assets

The auditor calculated the accounts receivable turnover for the year.

Analytical procedure