Chapter 13 – Auditing the Inventory Management Process
44. In obtaining an understanding of a manufacturing entity’s internal control concerning
inventory balances, an auditor most likely would
45. For several years, a client’s physical inventory count has been lower than what was shown
on the books at the time of the count so that downward adjustments to the inventory account
were required. Contributing to the inventory problem could be weaknesses in internal controls
that led to the failure to record some
Chapter 13 – Auditing the Inventory Management Process
46. Which of the following control activities would most likely be used to maintain accurate
perpetual inventory records?
47. An inventory turnover analysis is useful to the auditor because it may detect
48. Tracing costs used to price inventory to vendors’ invoices test which of the following
assertions?
Chapter 13 – Auditing the Inventory Management Process
49. The auditor tests the quantity of materials charged to work in process by tracing these
quantities to
50. Purchase cutoff activities should be designed to test that merchandise is included in the
inventory of the client company if the company
Chapter 13 – Auditing the Inventory Management Process
51. Which one of the following procedures would not be appropriate for an auditor in
discharging his or her responsibilities concerning the client’s physical inventories?
52. When outside firms of non-accountants specializing in physical inventory counts are used
to count, list, price, and subsequently compute the total dollar amount of inventory on hand at
the date of the physical count, the auditor will ordinarily
Chapter 13 – Auditing the Inventory Management Process
53. Which of the following is the best audit procedure for the discovery of damaged
merchandise in a client’s ending inventory?
54. The physical count of inventory of a retailer was higher than shown in its perpetual records.
Which of the following could explain the difference?
Chapter 13 – Auditing the Inventory Management Process
55. In an audit of inventories, an auditor would least likely verify that
56. The element of the audit planning process most likely to be agreed upon with the client
Chapter 13 – Auditing the Inventory Management Process
57. To gain assurance that all inventory items in a client’s inventory listing schedule are valid,
an auditor most likely would trace
58. Observing a client’s inventory held on consignment by others tests the assertion of
Chapter 13 – Auditing the Inventory Management Process
59. When an auditor tests a client’s cost accounting system, the auditor’s tests are primarily
designed to determine that
60. Which of the following is not one of the independent auditor’s objectives regarding the
Chapter 13 – Auditing the Inventory Management Process
61. An auditor concluded that no excessive costs for idle plant were charged to inventory. This
conclusion most likely related to the auditor’s objective to obtain evidence about the financial
statement assertions regarding inventory, including presentation and disclosure and
62. Which assertion for ending inventory is most likely violated if the gross profit percentage is
much greater than last year?
Chapter 13 – Auditing the Inventory Management Process
63. Which of the following is a question that the auditor would expect to find on the production
process section of an internal control questionnaire?
64. In order to efficiently establish the correctness of the accounts payable cutoff, an auditor
will be most likely to
Chapter 13 – Auditing the Inventory Management Process
65. The accuracy of perpetual inventory records may be established, in part, by comparing
perpetual inventory records with
66. The audit of the inventory management process is affected by the audit results from
multiple other processes. Identify the processes, other than the inventory management process,
that affect the audit of inventory and explain how each affect the audit of inventory.
Chapter 13 – Auditing the Inventory Management Process
67. State the six functions that make up the inventory management process. For each function,
identify the related documents and/or records that would be used by a manufacturing company.
Chapter 13 – Auditing the Inventory Management Process
68. The audit of inventory is often the most involved aspect of an audit. Describe at least three
inherent risk factors that affect the audit of inventory.
Chapter 13 – Auditing the Inventory Management Process
69. For each of the following, state whether it is a test of details of account balances or a test of
details of disclosures. Then note for which assertion the test provides evidence.
Chapter 13 – Auditing the Inventory Management Process
70. You are auditing SBT, which has a December 31st year-end. On December 24th, the person
responsible for processing receiving reports and recording the receipt of inventory became very
ill and was out of the office for a week. Due to the company’s small staff and the holiday season,
a number of the receiving reports were not processed on a timely basis. As an auditor, on which
assertion would you place a high importance for this client and how would you test for it?
Chapter 13 – Auditing the Inventory Management Process
71. Below is information relating to the inventory management of your audit client, Quick Sell.
Using analytical procedures, identify any concerns you have about misstatements in the
financial statements.
Chapter 13 – Auditing the Inventory Management Process
72. We know from cost accounting that there are three components that make up the standard
costs for inventory. Explain how an auditor could test each of these components for a company
that manufactures pillows.
73. Explain the importance of observing physical inventory during an audit.
Chapter 13 – Auditing the Inventory Management Process
74. List five things an auditor should do during the observation of the physical count of
inventory.