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Auditing > Production Cycle and Inventory > Flashcards

Production Cycle and Inventory Flashcards

1
Q

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

A

obsolescence

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2
Q

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

A

fraud

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3
Q

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

A

After

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4
Q

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

A

records

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5
Q

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

A

effectiveness

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6
Q

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

A

first

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7
Q

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

A

second

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8
Q

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

A

third

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9
Q

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

A

fourth

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10
Q

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

A

fifth

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11
Q

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

A

current

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12
Q

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

A

valuation

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13
Q

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

A

directly

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14
Q

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

A

purchasing

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15
Q

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

A

price

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16
Q

Inventory should be recorded when

A

The company has title to it.

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17
Q

The overall production authorization starts with a

A

production plan

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18
Q

The source of authorization for preparation of materials requisitions is

A

bill of materials

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19
Q

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?

A

occurrence

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20
Q

Responsibility for the physical inventory count lies with the

A

client

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21
Q

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.

A

Instructions for auditors’ test counts.

22
Q

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

A

completeness

23
Q

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

A

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

24
Q

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

A

acquisition, revenue

25
Q

Production activities start with a (blank blank)

A

sales forecast

26
Q

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

A

sales forecast

27
Q

A schedule for manufacturing is called the (blank blank)

A

production plan

28
Q

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

A

production order

29
Q

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

A

materials requisition (or materials transfer ticket)

30
Q

the most significant assertions for the audit of inventory are

A

existence, valuation

31
Q

inventory is affected by which relevant assertions

A

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

32
Q

COGS account is affected by which relevant assertions

A

completeness, accuracy

33
Q

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

A

Net realizable value

34
Q

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

A

items held on consignment are included in inventory

35
Q

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

A

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

36
Q

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

A

labor of material may be omitted from production costs

37
Q

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

A

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

38
Q

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

A

inventory, valuation

39
Q

tests of internal controls over inventory primarily involve these two tasks

A

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

40
Q

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

A

completeness

41
Q

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

A

occurrence

42
Q

What’s a possible substantive test over inventory completeness

A

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

43
Q

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

A

valuation

44
Q

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

A

inventory, presentation and disclosure

45
Q

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

A

existence

46
Q

To help detect inventory fraud auditors should

A

be skeptical of client personnel making notes

focus test counts on high-value items

Sample lower-value items.

47
Q

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.

A

compilation, pricing

48
Q

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

A

existence

49
Q

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

A

completeness

50
Q

Physical observation procedures are designed to audit for blank and blank

A

existence and completeness

Auditing (10 decks)

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