Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Question
Chapter 12, Problem 22QRA
a.
To determine
Explain the level of reliance that the auditor would place on the inventory certificate of outside specialists.
b.
To determine
Explain the impact of the inventory certificate of outside specialists upon the audit report of the auditor.
c.
To determine
Explain the references that the auditor would provide from the certificate of the outside specialist in the audit report.
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Students have asked these similar questions
The primary reason why auditors observe client's physical inventory is to make sure the amount of inventory reported in the Statement of Financial Position actually exists and fully owned by the company.a. Explain various audit procedures that should be performed by auditor to determine the slow-moving or obsolete items included in the inventory count. What is the important of attendance of the auditors during the physical inventory count?
Which of the following audit procedures probably would provide the most reliable evidence related to the entity’s assertion of rights and obligations for the inventory account?a. Trace test counts noted during physical count to the summarization of quantities.b. Inspect agreements for evidence of inventory held on consignment.c. Select the last few shipping advices used before the physical count and determine whether the shipments were recorded as sales.d. Inspect the open purchase order file for significant commitments to consider for disclosure.
MULTIPLE CHOICE:
1. Which of the following is not one of the independent auditor’s objectives regarding the audit of inventories?
A. Verifying that the client has used proper inventory pricing
B. Verifying the inventory counted is owned by the client
C. Ascertaining the physical quantities of inventory on hand
D. Verifying that all inventory owned by the client is on hand at the time of the count
2. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk is high an auditor will probably
A. Increase the extent of tests of controls relevant to the inventory cycle
B. Request the client to schedule the physical inventory count at the end of the year
C. Insist that the client perform physical counts of inventory items during the year
D. Apply gross profit tests to ascertain the reasonableness of the physical counts
3. To ascertain whether inventories included in the statement of financial position physically exist, a CPA will…
Chapter 12 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 12 - Prob. 1RQCh. 12 - Explain the significance of the purchase order to...Ch. 12 - What segregation of duties would you recommend to...Ch. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - When perpetual inventory records are maintained,...
Ch. 12 - What is meant by a bill and hold scheme?Ch. 12 - What charges and credits may be disclosed in the...Ch. 12 - Prob. 13RQCh. 12 - Prob. 14RQCh. 12 - A well-prepared balance sheet usually includes a...Ch. 12 - Darnell Equipment Company uses the LIFO method of...Ch. 12 - Prob. 17RQCh. 12 - Prob. 18RQCh. 12 - Prob. 19RQCh. 12 - Prob. 20RQCh. 12 - Prob. 21QRACh. 12 - Prob. 22QRACh. 12 - Prob. 23QRACh. 12 - Prob. 24QRACh. 12 - Prob. 25QRACh. 12 - Prob. 26QRACh. 12 - Prob. 27QRACh. 12 - Grandview Manufacturing Company employs standard...Ch. 12 - Prob. 29AOQCh. 12 - Prob. 29BOQCh. 12 - The document issued by a common carrier...Ch. 12 - Which of the following should be included as a...Ch. 12 - Prob. 29EOQCh. 12 - Prob. 29FOQCh. 12 - Instead of taking a physical inventory count on...Ch. 12 - Prob. 29HOQCh. 12 - Prob. 29IOQCh. 12 - Prob. 29JOQCh. 12 - Prob. 29KOQCh. 12 - Prob. 29LOQCh. 12 - Prob. 30OQCh. 12 - Adapted AICPA Task-Based Simulation For each of...Ch. 12 - Prob. 32OQCh. 12 - Prob. 33OQCh. 12 - Prob. 34AOQCh. 12 - Prob. 34BOQCh. 12 - Prob. 34COQCh. 12 - Prob. 34DOQCh. 12 - Prob. 34EOQCh. 12 - Prob. 35OQCh. 12 - Prob. 36PCh. 12 - Prob. 37PCh. 12 - Prob. 38PCh. 12 - Prob. 39PCh. 12 - Prob. 40PCh. 12 - Prob. 41PCh. 12 - Prob. 42PCh. 12 - Prob. 43ITCCh. 12 - Prob. 44ECCh. 12 - Western Trading Company is a sole proprietorship...
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- When verifying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchasea. Approvals.b. Requisitions.c. Invoices.d. Orders.arrow_forwardWhich of the following procedures is usually performed by the auditor to determine if obsolete inventory exists? a. Footing the inventory subsidiary ledger b. Analysis of inventory turnover and sales reports c. Sample the inventory reported by the client, examine the purchase date and receiving reports d. Confirmation of inventory with client’s customers Which statement is true? a. The incomplete recording of asset disposals understates the asset balance b. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well to lower the subsequent depreciation expenses c. Management never over-accrue impairments on machinery because it reduces the balance of assets d. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well because auditors will be more skeptic over the performance that is “too good to be true”arrow_forwardAn auditor often tries to acquire background knowledge of theclient’s industry as an aid to audit work. How does the acquisition of this knowledge aidthe auditor in distinguishing between obsolete and current inventory?arrow_forward
- As part of your audit of a client’s inventory balance, you created an expectation of what should be the inventory balance by using the gross profit method. The only concern was the difference between your expectation and the client’s financial statements which come in the form of using the gross profit method of estimating inventory as against the client reported balance which is below audit materiality level for audit of inventory. What is the best choice to do next? * A. Discuss with the management the implication of the significant difference and propose an adjusting journal entry accordingly.B. Extend audit procedures by doing further analytical procedures on the inventory balance.C. Extend audit procedures by doing test of details of the account balance.D. Issue an unqualified opinionarrow_forwardAs part of your audit of a client's inventory balance, you created an expectation of what should be the inventory balance by using the gross profit method. The difference between your expectation using the gross profit method of estimating inventory as against the client reported balance is above audit materiality level for audit of inventory. What should you do next? a. Discuss with the management the implication of the significant difference and propose an adjusting journal entry accordingly.b. Extend audit procedures by doing further analytical procedures on the inventory balance.c. Extend audit procedures by doing test of details of the account balance.d. Issue a qualified opinion on the basis of a material misstatement in the client's inventory.e. None of the abovearrow_forwardIn an audit of inventories, an auditor would most likely verify that: a. All inventory owned by the client is on hand at the time of the count. b. The client has used proper inventory pricing to reflect fair market value. c. The financial statement presentation of inventories is appropriate. d. Damaged goods and obsolete items have been recorded at historical cost. e. Goods-in-Transit, shipped to the client F.O.B. destination, are properly included in inventory.arrow_forward
- When a company's financial statements are audited, the principal element an auditor reviews is the reliability of the financial statement assertions. Which of the following audit objectives relate primarily to the financial report assertion of accuracy, valuation and allocation? Select one:a. Inventory listings are accurately compiled and the totals are properly included in the inventory accounts.b. Inventory quantities include all products, materials and supplies owned by the company that are in transit.c. Inventories exclude items billed to customers or owned by others. d. None of the abovearrow_forwardWhich of the following procedure is designed to prevent the company from ordering unnecessary items? A. Periodic counts of inventory and reconciliaton of counts to inventory records B. Using approved suppliers C. Requiring purchasing agents to disclose any financial investments in potential suppliers D. Approval of purchase requisitionsarrow_forwardChoose the one correct answer. As part of your audit of a client's inventory balance, you created an expectation of what should be the inventory balance by using the gross profit method. The difference between your expectation using the gross profit method of estimating inventory as against the client reported balance is above audit materiality level for audit of inventory. What should you do next? a. Discuss with the management the implication of the significant difference and propose an adjusting journal entry accordingly.b. Extend audit procedures by doing further analytical procedures on the inventory balance.c. Extend audit procedures by doing test of details of the account balance.d. Issue a qualified opinion on the basis of a material misstatement in the client's inventory.e. None of the abovearrow_forward
- An auditor would vouch inventory on the inventory status report to the vendor’s invoice toobtain evidence concerning management’s balance assertions abouta. Existence.b. Rights and obligations.c. Completeness.d. Valuationarrow_forwardWhich of the following is a substantive test in relation to completeness? a.Inspect physical inventory, checking from physical stock to inventory records. b.Enquire of management and scan inventory records to identify any obsolete, excess or slow-moving inventory. c.Inspect physical inventory, checking from inventory records to physical stock. d.Recalculate depreciation or depletion calculations.arrow_forwardWhy is it important for auditors to obtain control information over inventory count sheets or tickets?arrow_forward
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