Chapter 13 Review Questions – Flashcards

Unlock all answers in this set

Unlock answers
question
Why does inventory represent one of the more complex parts of the audit?
answer
...
question
How does the inventory management process relate to the revenue, purchasing, and payroll process?
answer
...
question
Production Schedule
answer
Is used to determine the quantity of goods needed and the time at which they are required to meet the production scheduling.
question
Materials Requisition
answer
Is the document that authorizes the release of raw materials from the raw materials department
question
Inventory Master File
answer
Contains all the important information related the entity's inventory including the perpetual inventory records for raw material , work in process, and finished goods.
question
Production Data Information
answer
Is reported about the transfer of goods and related cost accumulation at each stage of production.
question
Cost Accumulation and Variance Report
answer
Summarizes the various cost charged to departments and products and presents the results of inventory processing in terms of actual costs versus standard or budgeted costs.
question
What duties are performed within the inventory management, stores, and cost-accounting functions?
answer
...
question
List the key segregation of duties in the inventory management process.
answer
...
question
What errors or fraud can occur if such segregation of duties is not present?
answer
...
question
List the inherent risk factors that affect the inventory management process.
answer
...
question
List the major steps in setting control risk in the inventory management process.
answer
1-understand and document the inventory internal control system based on the planned level of control risk
question
The three major steps in assessing control risk in the inventory process are:
answer
2-plan and perform test of controls on inventory process transactions.
question
The three major steps in assessing control risk in the inventory process are:
answer
3-assess and document control risk for the inventory process
question
What control activities can a client use to prevent unauthorized inventory production?
answer
-preparation and review of an authorized production schedule -use of material requirements planning and/or just in time inventory systems -review of inventory levels by the inventory management department.
question
List three substantive analytical procedures that can test the fairness of inventory and related accounts.
answer
...
question
Describe how an auditor audits standard costs.
answer
...
question
List the procedures the auditor should perform during the account of the client's physical inventory.
answer
...
question
What are some possible causes of book-to-physical inventory differences?
answer
-inventory cutoff errors - unreported scrap or spoilage -pilferage or theft
question
List five items for inventory and related accounts that may require disclosure.
answer
...
question
The objectives of internal control for an inventory management process are to provide assurance that transactions are properly authorized and recorded and that...
answer
Custody of work in process and finished goods is properly maintained.
question
Which of the following control activities would be most likely to assist in reducing the control risk related to the occurrence of inventory transactions?
answer
Inventory manager doesn't have ability to record inventory transactions.
question
Which of the following would most likely be an internal control activity designed to detect errors and fraud concerning the custody of inventory?
answer
Independent comparisons of finished goods records with counts of goods on hand.
question
Independent internal verification of inventory(i.e. proper segregation of duties) occurs when employees who
answer
Compare records of goods on hand with physical quantities do not maintain the records or have custody of the inventory.
question
An auditor's tests of controls over the issuance of raw materials to production would most likely include
answer
Examination of materials requisitions and performance of client controls designed to process and record issuances.
question
Which of the following internal control activities is most likely to address the completeness assertion for inventory?
answer
Receiving reports are pre-numbered and periodically reconciled.
question
After accounting for a sequence of inventory tags, an auditor traces a samples of tags the physical inventory listing to obtain evidence that all items
answer
Represented by inventory tags are included in the listing.
question
When auditing merchandise inventory at year- end, the auditor performs a purchase cutoff test to obtain evidence that
answer
All goods owned at year-end are included in the inventory balance.
question
Inquiries of warehouse personnel concerning possibly obsolete or slow-moving inventory items provide assurance about management's assertion of
answer
Valuation
question
Periodic or cycle counts of selected inventory items are made at various times during the year rather than via a single inventory count at year-end. Which of the following is necessary if the auditor plans to observe inventory at interim dates?
answer
Perpetual inventory records are maintained.
question
An auditor would probably be least interested in which of the following fields in an electronic perpetual inventory file?
answer
Economic re-order quantity.
question
Which of the following audit procedures would probably provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventory?
answer
During the physical observation of inventory verify that "bill-and-hold" inventory is segregated and not included in the ending inventory account.
question
Audit Procedure: review loan agreements and minutes of board of director's meeting.
answer
Specific assertion: ensure that entity has legal title to inventory(rights and obligations).
question
Audit procedure: select a sample if items during the physical inventory count and determine that they have been included on count sheets.
answer
Specific Assertion: ensure that recorded inventory quantities include all products on hand(completeness)
question
Audit procedure: examine current vendor price lists.
answer
Specific Assertion:verify that inventory has been reduced, when appropriate, to replacement cost or net realizable value(valuation)
question
Audit procedure:select a sample of recorded items and examine supporting vendor invoices and contracts.
answer
Specific Assertion: verify that the cost of inventory has been properly determined(accuracy).
question
Audit procedure:review drafts of the financial statements.
answer
Specific Assertion: verify that the major categories of inventory and their bases of valuation are adequately reported in the financial statements(completeness and accuracy and valuation for presentation and disclosure).
Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds
New