Inventory

Question 1

Validity means?

Answer 1

existence

Question 2

What can cause a higher test control than what is recorded?

Answer 2

failure to record sales returns

Question 3

Inventory held in a warehouse in determining “existence” can be most effective by what factor?

Answer 3

confirmation (obtain direct confirmation from the custodian)

Question 4

All inventory owned does not have to be on hand; it simply must be properly included in the financial statements.

Answer 4

true

Question 5

What happens in inventory when the control risk is high?

Answer 5

• detection risk is low which means more items are being tested; more tests need to be performed at end of the year
• so the physical count should be at the end of the year

Question 6

Tracing from the detail to the records verifies that the records are complete.

Answer 6

true

Question 7

Valuation/Allocation in Inventory

Answer 7

-determining that inventories have been properly priced at the lower of cost or market by reviewing current production costs (no excess costs), which might include testing the entity’s computation of standard overhead rates

Question 8

Presentation/disclosure in inventory

Answer 8

loan documents to seethe adequacy of disclosures related to the inventory account

Question 9

Completeness in Inventory

Answer 9

• quantity of inventory
• The completeness assertion pertains to transactions that have NOT been recorded or are missing
• Performing cut-off procedures for shipping and receiving enables the auditor to detect late transactions that may not have been recorded in the proper period and may be missing from the current (audit) year.

Question 10

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.

Answer 10

True

Question 11

If inventory is at interim rate then the perpetual inventory must be maintained.

Answer 11

true