Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 29AOQ
To determine
Identify the appropriate answer related to the item least related to the objectives of the audit for inventories and cost of goods sold.
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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 above
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 above
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 opinion
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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- An auditor selected items for test counts while observing a client’s physical inventory.The auditor traced the test counts to the client’s inventory listing. This procedurelikely obtained evidence about which balance-related audit objective for inventory?(1) Existence (3) Completeness(2) Rights and obligations (4) Realizable valuearrow_forwardMULTIPLE 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…arrow_forwardIn the audit of inventory the auditor must perform important procedures prior to the actual observation. Identify the steps the auditor must take prior to the day the inventory is actually counted.arrow_forward
- 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.arrow_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_forwardAn auditor usually traces the details of the test counts made during the observation of physical inventory counts to a final inventory compilation. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of thephysical inventory count area. Owned by the client.b. Not obsolete.c. Physically present at the time of the preparation of the final inventory schedule.d. Included in the final inventory schedule.arrow_forward
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