Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 21, Problem 21DQP
a.
To determine
Provide three examples of inventories where specialist could be used by an auditor. Also, explain the manner in which work of the specialist could be used in each example.
b.
To determine
Explain the characteristics that might be considered by an auditor to ensure that the specialist is qualified.
c.
To determine
Explain the level of understanding that an auditor might require having in respect of the work performed by the specialist.
d.
To determine
Explain whether or not specialist should be independent of the client and the auditor.
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An 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?
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…
when the auditor Watch employees count inventory to determine whether company procedures are being followed. What type of evidence he or she is obtaining :
Select one:
a. observation
b. inspection
c. confirmation
d. assurance
e. inquiry
Chapter 21 Solutions
Auditing And Assurance Services
Ch. 21 - Prob. 1RQCh. 21 - Prob. 2RQCh. 21 - Prob. 3RQCh. 21 - Prob. 4RQCh. 21 - Prob. 5RQCh. 21 - Prob. 6RQCh. 21 - Prob. 7RQCh. 21 - Prob. 8RQCh. 21 - Prob. 9RQCh. 21 - Prob. 10RQ
Ch. 21 - Prob. 11RQCh. 21 - Each employee of the Gedding Manufacturing Co., a...Ch. 21 - Prob. 13.1MCQCh. 21 - Prob. 13.2MCQCh. 21 - Prob. 13.3MCQCh. 21 - Prob. 14.1MCQCh. 21 - Prob. 14.2MCQCh. 21 - Prob. 14.3MCQCh. 21 - Prob. 15.1MCQCh. 21 - Prob. 15.2MCQCh. 21 - Prob. 15.3MCQCh. 21 - Prob. 16DQPCh. 21 - Prob. 17DQPCh. 21 - Prob. 18DQPCh. 21 - Prob. 19DQPCh. 21 - Prob. 20DQPCh. 21 - Prob. 21DQPCh. 21 - Prob. 22DQPCh. 21 - Prob. 23DQPCh. 21 - Prob. 24DQPCh. 21 - Prob. 25DQPCh. 21 - Prob. 26DQPCh. 21 - Prob. 27DQPCh. 21 - Prob. 28DQPCh. 21 - Prob. 29DQPCh. 21 - Prob. 30C
Knowledge Booster
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?arrow_forwardWhen auditing inventories, an auditor would least likely verify thata. All inventory owned by the client is on hand at the time of the count.b. The client has used proper inventory pricing.c. The financial statement presentation of inventories is appropriate.d. Damaged goods and obsolete items have been properly accounted for.arrow_forwardRequired information Potential Misstatements in the Auditing of Inventory Read the overview below and complete the activities that follow. Because of its importance and typically high dollar value on the balance sheet of a manufacturing entity, the audit of inventory is important and often high risk. As such, auditors must take additional care when auditing this area due to the capacity for both errors and fraud. CONCEPT REVIEW: When identifying misstatements in testing inventory, it is important to consider the control environment to determine if the misstatements found are indicators of client error or intentional fraud. 1. Inventories with a high risk of 2. Purchasing and cash disbursements can provide opportunity for by employees 3. considering information about the client and its environment, the auditors must assess the risks of material misstatement related to assertions about inventory may be warranted as a signficant risk 5. 4 Audit procedures for consignment inventory could…arrow_forward
- When evaluating inventory controls, an auditor would be least likely toa. Inspect documents.b. Make inquiries.c. Observe procedures.d. Consider policy and procedure manualsarrow_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_forwardYour audit client is under intense pressure to meet an earnings target. Which transaction assertion for purchases is most at risk. Occurrence Accuracy Completeness Classificationarrow_forward
- Analyze some common internal controls over inventories. Explain the significant inherent risks associated with inventory. Explain the process of physical inventory counts and the auditor’s observation of this process. Describe common substantive procedures used to audit a client’s property, plant, and equipment. How is depreciation audited? How are intangible assets audited?arrow_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_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 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_forward
- How might an auditor effectively use preliminary analytical procedures in the audit of various expense accounts, such as miscellaneous expenses? How might this enable the auditor to better understand the business and its environment? How do computer-assisted procedures impact this audit?arrow_forwardWhen 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_forwardYour audit client is under intense pressure to meet an earnings target. Which transaction assertion for purchases is most at risk.arrow_forward
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