AUDIT OF INVENTORIES Flashcards
(10 cards)
Which of the following is not one of the independent auditor’s objectives regarding the audit
of inventories?
A. Verifying that inventory counted is owned by the client.
B. Verifying that the client has used proper inventory pricing.
C. Ascertaining the physical quantities of inventory on hand.
D. Verifying that all inventory owned by the client is on hand at the time of the count.
DDD
Periodic cycle counts of selected inventory items are made at various times during the year
rather than a single inventory count at year-end. Which of the following is necessary if the
auditor plans to observe inventories at interim dates?
A. Complete recounts by independent teams are performed.
B. Perpetual inventory records are maintained.
C. Unit cost records are integrated with production accounting records.
D. Inventory balances are rarely at low levels.
BBB
A client maintains perpetual inventory records in both quantities and pesos. If the assessed
level of control risk is high, an auditor will probably
A. Apply gross profit tests to ascertain the reasonableness of the physical counts.
B. Increase the extent of tests of controls relevant to the inventory cycle.
C. Request 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.
CCC
After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the
physical inventory listing to obtain evidence that all items
A. Included in the listing have been counted.
B. Represented by inventory tags are included in the listing.
C. Included in the listing are represented by inventory tags.
D. Represented by inventory tags are bona fide.
BBB
If the perpetual inventory records show lower quantities of inventory than the physical
count, an explanation of the difference might be unrecorded
A. Sales
B. Purchase returns
C. Purchases
D. Purchase discounts
C
The physical count of inventory of a retailer was higher than shown by the perpetual records.
Which of the following could explain the difference?
A. Inventory item has been counted but the tags placed on the items had not been taken
off the items and added to the accumulation sheets.
B. Credit memos for several items returned by customers had not been recorded.
C. No journal entry had been made on the retailer’s books for several items returned to its
suppliers.
D. An item purchased “FOB shipping point” had not arrived at the date of the inventory
count and had not been reflected in the perpetual records.
BB
An auditor is most likely to learn of slow-moving inventory through
A. Inquiry of sales personnel.
B. Inquiry of warehouse personnel.
C. Physical observation of inventory.
D. Review of perpetual inventory records.
DD
The audit of year-end inventories should include steps to verify that the client’s purchases
and sales cutoffs were adequate. This audit step should be designed to detect whether
merchandise included in the physical count at year-end was not recorded as a
A. Sale in the subsequent period.
B. Purchase in the current period.
C. Sale in the current period.
D. Purchase in the subsequent period.
CC
An auditor’s observation of physical inventories at the main plant at year-end provides direct
evidence to support which of the following objectives?
A. Accuracy of the priced-out inventory.
B. Evaluation of the lower of cost or market test.
C. Identification of obsolete or damaged merchandise to evaluate allowance (reserve) for
obsolescence.
D. Determination of goods on consignment at another location.
CC
Which of the following is the best audit test to evaluate the accuracy of the inventory records
for materials inventory in a production operation?
A. Trace selected inventory receipts to perpetual inventory records.
B. Vouch selected postings in the perpetual inventory records to source documents.
C. Perform turnover tests for materials inventory.
D. Reconcile quantities on hand per physical counts of selected items with perpetual
inventory records and verify pricing.
DDD
