chap 9

which cycle is not directly linked to the production cycle?

finance and investment cycle

to determine the client’s planned amount and timing of production of a product, the auditor reviews the

production plan

an auditor reviews job cost sheets to test which transaction assertion?

accuracy

which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?

the warehouse manager is responsible for maintenance of perpetual inventory records

to make a year to year comparison of inventory turnover most meaningful, the auditor performs the analysis

by product

which of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?

have separate warehouse space for the more valuable items with frequent periodic physical counts and comparison to perpetual inventory records

an auditor usually traces the details of the test counts made during the observation of physical inventory counts to a final inventory compilation. This audit procedure is undertaken to provide evidence that items physically present and observeed by the auditor at the time of the physical inventory count are

included in the final inventory schedule

a retailer’s physical count of inventory was higher than that shown by the perpetual records. Which of the following could explain the difference?

credit memos for several items returned by customers had not been recorded

from the auditors’ point of view, inventory counts are more acceptable prior to the year end when

accurate perpetual inventory records are maintained

when auditing inventories, an auditor would least likely verify that

all inventory owned by the client is on hand at the time of the count

a client maintains perpetual inventory records in quantities and in dollars. if the assessed control risk is high, an auditor would probably

request the client to schedule the physical inventory count at the end of the year

an auditor selected items for test counts while observing a client’s physical inventory. The auditor then traced the test counts to the client’s inventory listing. This procedure most likely obtained evidence concerning management’s balance assertion of

completeness

which of the following auditing procedures probably would provide the most reliable evidence concerning the entity’s assertion of rights and obligations related to inventories?

inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens

an auditor most likely would analyze inventory turnover rates to obtain evidence concerning management’s balance assertions about

valuation

an auditor would vouch inventory on the inventory status report to the vendor’s invoice to obtain evidence concerning management’s balance assertions about

valuation.

when evaluating inventory controls, an auditor would be least likely to

consider policy and procedure manuals

when testing a company’s cost accounting system, the auditor uses procedures that are primarily designed to determine that

costs have been properly assigned to finished goods, in work in process and cost of goods sold

your client counts inventory three months before the end of the fiscal year because controls over inventory are excellent. Which procedure is not necessary for the roll-forward?

Request the client to recount inventory at the end of the year

An auditor is examining a nonissuer’s inventory procurement system and has decided to perform tests of controls. Under which of the following conditions do GAAS require tests of controls be performed by an auditor?

the auditor believes that testing the controls could lead to a reduction in overall audit time and cost

which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance?

inventory is complete

a portion of a client’s inventory is in public warehouses. Evidence of the existence of this merchandise can most efficiently be acquired through which of the following methods?

confirmation

the purpose of tracing a sample of inventory tags to a client’s computerized listing of inventory items is to determine whether the inventory items

represented by tags were included on the listing

which of the following results of analytical procedures would most likely indicate possible unrecorded inventory?

current ratio of 3:1 as compared to 5:1 for the prior period