Production Cycle and Inventory

Question 1

Inventories with a high risk of ______may be warranted as a signficant risk.

Answer 1

obsolescence

Question 2

Purchasing and cash disbursements can provide opportunity for ______ by employees.

Answer 2

fraud

Question 3

_____considering information about the client and its environment, the auditors must assess the risks of material misstatement related to assertions about inventory.

Answer 3

After

Question 4

Audit procedures for consignment inventory could include a comparison of the physical inventory with the client’s _________.

Answer 4

records

Question 5

Tests used to help identify the _____of controls help to evaluate the client’s internal control structure.

Answer 5

effectiveness

Question 6

Use the understanding of the client and its environment to consider inherent risks, including fraud risks, related to inventories and cost of goods sold is the ____ step of the inventory audit process

Answer 6

first

Question 7

Obtain an understanding of internal control over inventories and cost of goods sold is the ____ step of the inventory audit process

Answer 7

second

Question 8

Assess the risks of material misstatement and design further audit procedures is the ____ step of the inventory audit process

Answer 8

third

Question 9

Perform tests of controls is the ____ step of the inventory audit process

Answer 9

fourth

Question 10

Perform substantive audit procedures is the ____ step of the inventory audit process

Answer 10

fifth

Question 11

Inventories are often a large _____ asset of a company’s balance sheet.

Answer 11

current

Question 12

The accounting profession allows various methods for the _______ of inventory.

Answer 12

valuation

Question 13

The determination of the value of ending inventory ____ affects net income.

Answer 13

directly

Question 14

When testing controls around inventory, auditors are considering the ________transaction cycle.

Answer 14

purchasing

Question 15

An important step of testing controls is comparing quantity and _______ in the invoice, purchase order, and receiving report.

Answer 15

price

Question 16

Inventory should be recorded when

Answer 16

The company has title to it.

Question 17

The overall production authorization starts with a

Answer 17

production plan

Question 18

The source of authorization for preparation of materials requisitions is

Answer 18

bill of materials

Question 19

CPA selected an invoice for a large inventory purchase and vouched the invoice to the receiving report. Which assertion is the auditor most likely testing?

Answer 19

occurrence

Question 20

Responsibility for the physical inventory count lies with the

Answer 20

client

Question 21

Client’s inventory instructions should include all the following except:

Names of client personnel responsible for the count.

Instructions for recording accurate descriptions.

Instructions for auditors’ test counts.

Plans for controlling movement of goods.

Answer 21

Instructions for auditors’ test counts.

Question 22

Tracing a test count to the inventory compilations provides evidence for which ASB balance assertion?

Answer 22

completeness

Question 23

A client maintains perpetual inventory records in both quantities and dollars. If the auditor is able to accept a high level of detection risk, the auditor would probably

Answer 23

Apply gross profit tests to ascertain he reasonableness of the physical inventory counts.

Question 24

the production cycle links the (blank) cycle to the (blank) cycle

Answer 24

acquisition, revenue

Question 25

Production activities start with a (blank blank)

Answer 25

sales forecast

Question 26

A marketing projection of product sales based on past performance and marketing initiatives is a (blank blank)

Answer 26

sales forecast

Question 27

A schedule for manufacturing is called the (blank blank)

Answer 27

production plan

Question 28

the production planner issues a (blank blank) to appropriate production personnel

Answer 28

production order

Question 29

inventory control will receive a (blank blank) that authorizes inventory to release raw materials to production

Answer 29

materials requisition (or materials transfer ticket)

Question 30

the most significant assertions for the audit of inventory are

Answer 30

existence, valuation

Question 31

inventory is affected by which relevant assertions

Answer 31

existence, completeness, cutoff, valuation & allocation, rights, presentation & disclosure

Question 32

COGS account is affected by which relevant assertions

Answer 32

completeness, accuracy

Question 33

GAAP requires inventory to be stated at the lower of cost or (blank blank blank)

Answer 33

Net realizable value

Question 34

what could go wrong with the rights assertion and the inventory account

Answer 34

items held on consignment are included in inventory

Question 35

what could go wrong with the presentation & disclosure assertion and the inventory account

Answer 35

inventory pledged as collateral is not disclosed, footnotes omit cost flow assumptions

Question 36

what could go wrong with the completeness assertion and the COGS account

Answer 36

labor of material may be omitted from production costs

Question 37

what could go wrong with the accuracy assertion and the COGS account

Answer 37

costs of direct material, labor, and overhead have not been properly calculated

Question 38

Management's review of inventory costing and cost sheets for projects and production runs is an internal control over which account addressing which assertion

Answer 38

inventory, valuation

Question 39

tests of internal controls over inventory primarily involve these two tasks

Answer 39

observation and inspection of documentation (sequential order, management review, reconciliation of costing, authorizations)

Question 40

when auditors sample from the population of production orders and trace cost forward to production cost and accounting, they are testing in the (blank) direction

Answer 40

completeness

Question 41

when auditors test to determine that items composing the WIP and finished goods inventories recorded in inventory were actually produced, they are testing in the (blank) direction

Answer 41

occurrence

Question 42

What's a possible substantive test over inventory completeness

Answer 42

observe physical inventory ensuring all items were counted, trace inventory test counts to sub/control accounts

Question 43

comparing average unit costs of inventory or turnover ratios with prior periods and purchase records tests what assertion over inventory

Answer 43

valuation

Question 44

inspecting contracts/inquiring about inventory pledged as collateral tests which assertion

Answer 44

inventory, presentation and disclosure

Question 45

Auditors must verify that items included in inventory were in inventory on the balance sheet date to address the Blank______ assertion.

Answer 45

existence

Question 46

To help detect inventory fraud auditors should

Answer 46

be skeptical of client personnel making notes focus test counts on high-value items Sample lower-value items.

Question 47

After inventory has been counted, the client summarizes the count by item number and applies a chosen costing method to determine the total inventory owned, which is compared with the amount in the general ledger. This step is normally referred to as the blank and blank procedure.

Answer 47

compilation, pricing

Question 48

Selecting items from a perpetual inventory record and obtaining a test count can be done to produce evidence for the (blank) assertion

Answer 48

existence

Question 49

tracing items from the inventory floor to the inventory records produces evidence for the (blank) assertion

Answer 49

completeness

Question 50

Physical observation procedures are designed to audit for blank and blank

Answer 50

existence and completeness