Exam 3 Chapter 9

Question 1

Main accounts associated with Inventory

Answer 1

Inventory and COGS

Question 2

Which assertions are relevent to Inventory

Answer 2

All of them

Question 3

What are auditors supposed to do in regards to the inventory counting process

Answer 3

Observe it

Question 4

Are auditors responsible for counting the inventory?

Answer 4

No the client is

Question 5

Why do auditors do test counts of inventory?

Answer 5

To check the client

Question 6

Assertions that are associated with COGS

Answer 6

Completeness and Accuracy

Question 7

Concern for the Existence and Cutoff assertions for RMM

Answer 7

Are the items included in inventory actually in the inventory on the balance sheet date

Question 8

2 concerns for the Completeness assertion for RMM

Answer 8

Have all inventory items been included
Does COGS include all costs of inventory sold during the year

Question 9

Concern for the Valuation assertion for RMM

Answer 9

Has inventory been properly accounted and valued using a GAAP approved method?

Question 10

Concern for the Rights assertion for RMM

Answer 10

Are items included in inventory actually property of the client

Question 11

Concern for the Presentation and Disclosure assertion for RMM

Answer 11

Has proper presentation and disclosure been completed for inventory

Question 12

Concern for the Accuracy assertion for RMM

Answer 12

Has the amount of COGS been properly accounted for using an approved GAAP method?

Question 13

What could go wrong with the Existence assertion for inventory?

Answer 13

Items included in inventory records are not actually in inventory

Question 14

What could go wrong with the Completeness assertion for inventory?

Answer 14

Some items might not be included in inventory

Question 15

What could go wrong with the Cutoff assertion for inventory

Answer 15

Inventory transactions near year end are recorded in the wrong period

Question 16

What 3 things could go wrong with the Valuation assertion for inventory

Answer 16

Cost flow assumptions are incorrect
Proper costs of DM, DL, and Overhead are not allocated
Inventory is damaged/obsolete

Question 17

What could go wrong with the Rights assertion for inventory

Answer 17

Items held on consignment are included in inventory

Question 18

What (3 things) could go wrong with the Presentation and Disclosure assertion for inventory

Answer 18

Inventory pledged as collateral is not disclosed
Cost flow assumptions are not disclosed
Inventory misclassified between raw materials, WIP, and fished goods

Question 19

What could go wrong with the Completeness assertion for COGS

Answer 19

Labor or material may be omitted from production costs

Question 20

What could go wrong with the Accuracy assertion for COGS

Answer 20

Costs of Direct Material, Labor, and Overhead are not properly calculated

Question 21

Client Count Instructions for Physical Inventory (READ)

Answer 21

Know names or team number and dates
Have instructions for descriptions and counts
Note obsolete or damaged items
Do tag control and a compilation of counts
Shut down production
Control inventory movement including shipping and receiving
Have instructions for supervisory approval
Make changes and corrections if needed

Question 22

3 Physical Inventory Objectives for Auditors

Answer 22

Observation of inventory count
Tests of pricing and compilation
Analytical procedures (of excessive and slow-moving inventory)

Question 23

Are auditors required to make or observe physical counts of inventory and apply appropriate tests of intervening transactions?

Answer 23

Yes

Question 24

Elements of Physical Inventory Observation (READ)

Answer 24

Make tests counts at a time other than year end (test roll forward or roll back)
Review client instructions
Stop the flow of goods
Make test counts (from inventory listing, warehouse floor, and record counts in working papers)
Listen to instructions provided to count teams
Understand the use of control tags, count sheets, scanners, and RFID
By wary of fraudulent hollow squared and empty boxes
Tour shipping and receiving areas
Watch for obsolete and slow moving inventory
Confirm inventory on consignment and at other locations
Consider the use of specialists depending on the type of inventory
Confirm inventory in transit
Most companies use some sort of technology for inventory coutns
Drone technology is promising and useful in some cases (farm animals)

Question 25

3 elements of Pricing and Compilation Tests

Answer 25

Valuation
Checking extensions and footings
Agreeing to general ledger

Question 26

3 Price Tests

Answer 26

Checking Vendor invoices
Checking Cost flow assumption used (FIFO, LIFO, etc)
Lower of cost or market valuation

Question 27

What is this cycle called?

Answer 27

The Production Cycle