Inventory

Question 1

observation of inventory is a dual purpose test

Answer 1

internal control objectives-comparing inventory of what is on hand to the records that say what is on hand

substantive objectives-gathering evidence to evaluate the dolar balance reported for inventory

Question 2

the______assertion is the most important assertion for assets

Answer 2

existence

Question 3

auditor should focus on count tag (tags client uses to number inventroy)

Answer 3

auditor should conduct own count and compare it to count tag. tags should be prenumbered and the sequence should be accounted for.

quantities-auditor performs own test counts and compares to clients

price test-verify the reasonableness of clients cost/unit

extensions-test the quantity xcost/unit (check total and agree to clients listing)

Question 4

for completeness assertion perform a _____ test for sales and purchases a few days before and after year end.

sales cuttoff - compare sale entries to sale journal

purchase-inspect shipments (receiving report) and compare to purchase journal entries.

Answer 4

cutoff

Question 5

rights and obligations

Answer 5

inquire if inventory was used as collateral in debts. read debt aggreement.

shipped on consignment but counted as sale

Question 6

valuation issues

Answer 6

analytical procedures- perform analycital procedures to identify excess or slow moving (inventory turnover ration). be attentive to dusty boxes. inventory price may have to be reduced