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 29JOQ
To determine
Identify the appropriate answer related to the
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1. What is the primary reason we perform physical inventory observations?
A. To obtain sufficient appropriate audit evidence over the existence and condition of inventory to meet the objectives of the professional auditing standards
B. To obtain sufficient appropriate audit evidence that inventory is recorded at the correct cost on the financial statements
C. To provide assurance over the time it takes inventory to leave the warehouse and arrive at the customer
D. To verify assumptions used in management's estimates regarding inventory reserves
2. What piece of information gained during the understanding of the inventory process would be LEAST relevant to the scoping of inventory locations?
A. The company hired a new count supervisor for one of their largest locations
B. Book to physical adjustments were material in the prior year for 2 locations
C. Cycle count accuracy rates have been greater than management's targets in the prior year and current year to date
D. WIP inventory takes…
3)
Which of the following audit procedures is a test of control?
a.
Management providing written instruction to all employees and supervising the monthly inventory stocktake.
b.
Observing employee compliance with stocktake procedures.
c.
Picking a sample of goods received notes and ensuring the correct date is recorded in the purchase’s ledger.
d.
Estimating total sales for a specific product line for the year and comparing actual sales.
Which of the following audit procedures is the best test of the accuracy, valuation and allocation assertion for inventory?
Select one:
a. Obtaining the last receiving record numbers for the period and checking that they were taken up correctly
b. Confirming stock held on consignment
c. Comparing standard costs to actual sales prices.
d. Attending the annual stocktake
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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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Explain inventory overstatement. A merchandising company has asked you to advise it on how to detect fraudulent financial reporting. Management wants your help in detecting inventory overstatement. Further, management wants to know how to find evidence of inventory overstatement. Using your own numbers, make up an example to show management the effect of overstating inventory. Show how inventory overstatement at the end of Year 1 carries through to the beginning inventory overstatement in Year 2. Prepare a brief report to management suggesting ways management could detect inventory overstatement.arrow_forwardQuestion 2: Following are audit procedures commonly per- formed in the inventory and warehousing cycle for a manufacturing company: 1. Read the client’s physical inventory instructions and observe whether they are being followed by those responsible for counting the inventory. 2. Use audit software to compute inventory turnover by major product line and com- pare it to turnover in the prior year. 3. Account for a sequence of inventory tags and trace each tag to the physical inventory to make sure it actually exists. 4. Compare the client’s count of physical inventory at an interim date with the per- petual inventory master file. 5. Trace the auditor’s test counts recorded in the audit files to the final inventory com- pilation and compare the tag number, description, and quantity. 6. Compare the unit price on the final inventory summary with vendors’ invoices. 7. Account for a sequence of raw material requisitions and examine each requisition for an authorized approval. 8. Trace the…arrow_forwardQuestion 2: Following are audit procedures commonly per- formed in the inventory and warehousing cycle for a manufacturing company: 1. Read the client’s physical inventory instructions and observe whether they are being followed by those responsible for counting the inventory. 2. Use audit software to compute inventory turnover by major product line and com- pare it to turnover in the prior year. 3. Account for a sequence of inventory tags and trace each tag to the physical inventory to make sure it actually exists. 4. Compare the client’s count of physical inventory at an interim date with the per- petual inventory master file. 5. Trace the auditor’s test counts recorded in the audit files to the final inventory com- pilation and compare the tag number, description, and quantity. 6. Compare the unit price on the final inventory summary with vendors’ invoices. 7. Account for a sequence of raw material requisitions and examine each requisition for an authorized approval. 8. Trace the…arrow_forward
- A client maintains perpetual inventory records in quantities and in dollars. If the assessed control risk is high, an auditor would probablya. Apply gross profit tests to ascertain the reasonableness of the physical counts.b. Increase the extent of tests of controls relevant to the inventory cycle.c. Request the client to schedule the physical inventory count at the end of the year.d. Insist that the client perform physical counts of inventory items several times during the year.arrow_forwardDetermine the type of evidence we can get from this audit procedure. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year. a. Analytical procedure b. Confirmation c. Physicals examination d. Inspectionarrow_forward1)Which of the following is not an audit procedure for inventories? a)Review cut-off of inventory transactions. b)Take an inventory to ensure all items are counted. c)Test inventory pricing. d)Determine whether inventories have been pledged as collateral for loans. 2) Price testing of inventory items includes: a)agreeing recorded inventory amounts to receiving reports. b)agreeing recorded inventory amounts to recorded test counts. c)agreeing recorded inventory amounts to purchase invoices. d)agreeing recorded inventory amounts to sales prices. 3)Procedures designed to identify obsolete inventory include: a)performing test counts of inventory. b)vouching inventory items to purchase invoices. c)comparison of inventory recorded amounts to current sales prices. d)reviewing shipping and receiving documents around period end. 4)Which of the following is not conducive to effective internal control over inventories? a)All goods should be received by the receiving…arrow_forward
- Management decided to undertake a physical inventory count in resolving a perceived weakness in the Company’s inventory control process. You have been appointed as the auditor of Small Limited.Required: Itemise the duties of the auditor in relation to inventories count under the following headings: Before the count, During the count After the countarrow_forwardFor each of the audit procedures listed below state the primary ‘Assertion’ and the related financial statement account (i.e. Receivables, Inventory etc.) it is focused on. (Answer in the table format below). Audit Procedure Assertion Financial Statement Account 1 Review and test the procedures for identifying obsolete and damaged inventory 2 Compare the current periods number of days sales outstanding with prior periods and consider reasonableness considering current economic conditions 3 Agree a sample of travel expenses from the general ledger to supporting supplier invoices 4 Attend the client’s year end stock-take and select a sample of stock items from the warehouse shelves and agree them to client’s inventory count sheets. 5 Compare your client’s gross profit % to prior periods 6 Review and determine the adequacy of your client’s instructions to their staff concerning the counting…arrow_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_forward
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