431 ch12,13

Account that reveal evidence relating to recorded retirement of equipment?

Accumulate depreciation Insurance Expense PPNE

The auditors may conclude that depreciation charges are insufficient by noting:

Excessive recurring losses on assets retired.

In testing plant and equipment balances, an auditor may select recorded additions in the analysis of plant and equipment and inspect the actual asset(s) involved. Which management assertion is this procedure most directly related to?

Existence

The auditors are most likely to seek information from the plant manager with respect to the:

Existence of obsolete machinery.

To assure that the physical inventory is taken properly, the auditors should prepare and take primary responsibility for the physical inventory instructions.

False

Why is the observation of physical inventory a mandatory auditing procedure?

Observation of physical inventory is generally mandatory because it provides strong evidence as to existence and quality of the client's inventories.

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.

A client's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record:

Sales

The extent of the auditors' test counts of inventory items should be influenced by the inherent risk of the client's inventory and the adequacy of the client's internal control.

True

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

Uses a standard cost system that produces variance reports.

To assure accountability for fixed-asset retirements, management should implement an internal control that includes:

Utilization of serially numbered retirement work orders.

auditors' objectives in the audit of inventories and cost of goods sold

Valuation, existence, completeness

The best procedure for the discovery of damaged goods is

an examination of the condition of the inventory during the auditors' observation of the physical inventory.

A client's materials purchasing cycle begins with requisitions from user departments and ends with the receipt of materials and the recognition of a liability. An auditor's primary objective in reviewing this cycle is to:

evaluate the reliability of information generated as a result of the purchasing process.

An inventory turnover analysis is useful to the auditor because it may detect:

the existence of obsolete merchandise.