Ch. 12 Audit

The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: a. Bill of lading. b. Production order. c. Production schedule. d. Job time shipping.

a. Bill of lading.

The organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the: a. Cost Accounting Standards Board. b. Financial Accounting Standards Board. c. Securities and Exchange Commission. d. Public Company Accounting Oversight Board.

a. Cost Accounting Standards Board.

Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? a. Establish that the client includes only inventory on hand at year-end in inventory totals. b. Establish the completeness of inventories. c. Determine that the valuation of inventories and cost of goods sold is arrived at by appropriate methods. d. Determine the existence of inventories and the occurrence of transactions affecting cost of goods sold.

a. Establish that the client includes only inventory on hand at year-end in inventory totals.

In testing management's rights and obligations assertion in relation to inventories, which of the following procedures would the auditor most likely consider most reliable? a. Review consignment agreements. b. Vouch inventory counts to accounting records. c. Trace inventory in accounting records to inventory counts. d. Make inquiries and analyze inventory turnover to identify slow-moving or obsolete items.

a. Review consignment agreements.

Instead of taking a 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: a. Well-kept records of perpetual inventory are maintained. b. Inventory is slow-moving. c. Computer error reports are generated for missing prenumbered inventory tickets. d. Obsolete inventory items are segregated and excluded.

a. Well-kept records of perpetual inventory are maintained.

Which of the following should be included as a part of inventory costs of a manufacturing company? a. Direct Labor: No, Raw Materials: Yes, Factory Overhead: No b. Direct Labor: Yes, Raw Materials: Yes, Factory Overhead: Yes c. Direct Labor: Yes, Raw Materials: No, Factory Overhead: No d. Direct Labor: No, Raw Materials: No, Factory Overhead: No

b. Direct Labor: Yes, Raw Materials: Yes, Factory Overhead: Yes

An auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and: a. Existence. b. Valuation. c. Rights. d. Completeness.

b. Valuation.

An auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to: a. Rights. b. Completeness. c. Existence. c. Valuation.

c. Existence.

An auditor most likely would analyze inventory turnover rates to obtain evidence about: a. Rights. b. Presentation. c. Valuation. d. Existence.

c. Valuation.

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: a. Existence. b. Presentation. c. Valuation. d. Rights.

c. Valuation.

McPherson Corporation 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 examination, Mullins: a. Is required, if the inventories are material, to disclaim an opinion on the financial statements taken as a whole. b. Should comment in the scope paragraph as to her inability to observe year-end inventories, but can nevertheless issue an unqualified opinion. c. Should, if the inventories are material, qualify her opinion. d. Can issue an unqualified opinion without disclosing that she did not observe year-end inventories.

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

During the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to: a. Rights. b. Valuation. c. Existence. d. Completeness.

d. Completeness.

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? a. Compare the physical quantities of slow-moving items with corresponding quantities in the prior year. b. Review the management's inventory representations letter for accuracy. c. Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average. d. Observe merchandise and raw materials during the client's physical inventory taking.

d. Observe merchandise and raw materials during the client's physical inventory taking.

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: a. Have to disclaim an opinion on the income statement for that year. b. Increase the extent of tests for unrecorded liabilities at the end of the year. c. Want the client to schedule the physical inventory count at the end of the year. d. Insist that the client perform physical counts of inventory items several times during the year.

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