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To measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into:

Cost of goods sold

For good internal control over purchase transactions, purchases should be made from approved vendors by the department needing the goods

false

Observation of inventories is a required audit procedure under all circumstances.

false

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: A. Purchases. B. Purchase discounts. C. Sales. D. Sales discounts.

C. Sales

Auditors should not review the client's planning of the physical inventory.

false

To test the client's cutoff of inventories, the auditors will make a record of the serial number of the final receiving and shipping documents used prior to the taking of the physical inventory

true

Which of the following best describes the reason the auditors record their inventory tests count in the working papers

For subsequent comparison with the completed inventory listing

The receiving department should accept only goods for which there is an approved purchase order on hand.

true

The use of a tagging system for inventory taking is designed to prevent double counting of goods

true

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 inventory summary sheets. Which assertion does this procedure relate to most directly? A. Completeness. B. Existence. C. Legality. D. Valuation.

A. Completeness

A receiving department compares inventory items received with copies of purchase orders. The purchase orders list the name of the vendor and do not list the quantities of the material ordered. Using the purchase orders, the receiving department is most likely to detect: A. Deliveries for which no purchase order was issued. B. Unapproved sales orders. C. Partial deliveries. D. Deliveries of a greater quantity of items than those ordered.

A. Deliveries for which no purpose order was issued

In verifying credits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the: A. Shipping documents. B. Receiving reports. C. Purchase orders. D. Vendors' invoices.

A. Shipping documents

To measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into: A. Net sales B. Cost of goods sold C. Operating income D. Gross sales

B, Cost of goods sold

The use of a "blind" purchase order is designed to prevent errors by the: A. Purchase department. B. Receiving department. C. Stores department. D. Accounting department.

B. Receiving department

Which of the following is not true relating to the auditors observation of the clients physical inventory? A. The auditors should evaluate the clients planning of the physical inventory B. The auditors should make certain that cosigned items for suppliers are included in physical inventory totals C. The auditors should evaluate the adequacy of the clients counting procedures. D. The auditors should take test counts of the clients inventory

B. The auditors should make certain that cosigned items for suppliers are included in physical inventory totals

An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all: A) Merchandise received. B) Vendor's invoices. C) Canceled checks. D) Receiving reports.

B. Vendors invoices

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: A. owned by the client B. Not obsolete C. physical present at the time of the presentation of the final inventory schedule C. Included in the final inventory schedule

C. Included in the final inventory schedule

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: A. Sales. B. Sales discounts. C. Purchases. D. Purchase returns.

C. Purchases

Which of the following is true about the auditors observation of the clients physical inventory? A. The auditors should plan the phycsical inventory B. The auditors should segregate damaged and obsolete goods C. The auditors should evaluate the adequacy of the clients counting procedure D. The auditors should supervise the clients personnel

C. The auditors should evaluate the adequacy of the clients counting procedure

To assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor's invoice to: A. The purchase requisition. B. The receiving report. C. The purchase order. D. The voucher.

C. The purchase order

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items? A. Supplies of relatively little value are expensed when purchased B. The cycle basis is used for physical counts C. The storekeeper is reponsible for maintenance of perpetual inventory records D. Perpetual inventory records are maintained only for items of significant values

C. The storekeeper is reponsible for maintenance of perpetual inventory records

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: A) Cash disbursements. B) Approved vouchers. C) Receiving reports. D) Vendors' invoices.

Cash Disbursments

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all:

Cash disbursments

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 inventory summary sheets. Which assertion does this procedure relate to most directly?

Completeness

Which of the following is not a procedure that typically is used by the auditors in their examination of a clients goods held in the custody of a public warehouse

Corresponding with the state agency regarding uthenticity of the public warehouse

In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the: A. Purchases journal. B. Purchase requisitions. C. Purchase orders. D. Vendors' invoices.

D. Vendors invoices

A receiving department compares inventory items received with copies of purchase orders. The purchase orders list the name of the vendor and do not list the quantities of the material ordered. Using the purchase orders the receiving department is most likely to detect

Deliveries for which no purchase order was issued

The use of a "blind" purchase order is designed to prevent errors by the:

Receiving department

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

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

Shipping documents

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 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

To assure that all purposes are authorized before payment is made, accounting department personel should match the vendors invoice to

The purchase order

Which of the following best describes the reason for the auditors review of the clients cost accounting system?

To obtain evidence about the valuation of work in process, finished goods, and cost of goods sold

effective internal control for purchases generally can be achieved in a well-planned organizational structure with a seperate purchasing department that has:

the authority to make purchases of requesitioned materials and services

An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all:

Vendors invoices

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

Vendors invoices

The examination of warehouse receipts is not sufficient verification of a material amount of goods stored in public warehouses.

true

The lower-of-cost-or-market test by the auditors is generally designed to assure that inventories are not valued above their net realizable values

true

The proper cutoff of inventories is best achieved when the client uses prenumbered purchase orders.

false

Purchase cutoff procedures should be designed to produce evidence of whether merchandise is included in the inventory of the client company if the company

holds legal title to the company

Which of the following best describes the auditors response to a clients use of statistical sampling techniques to estimate this inventory?

the auditors should satisfy themselves as statistical validity of the technique, and the reasonableness of the allowance for sampling risk and sampling error used.