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Thecorrectanswerforeachquestionisindicatedbya .
1
INCORRECT
Fleming,thepurchasingmanageratSparksHardwareWholesalers,hasarelative
namedPattersonwhoownsaretailhardwarestore.Flemingarrangedforhardware
tobedeliveredbymanufacturersdirectlytotheretailstoreonaC.O.D.(cashon
delivery)basistoenablePattersontobuyatlowerwholesaleprices.Flemingwas
mostlikelyabletodothisbecauseofSparks?poorinternalcontrolregarding
A) Perpetualinventoryrecords.
B) Processingofcashreceipts.
C) Processingofpurchaseorders.
2
INCORRECT
D) Processingofinvoices.
Theobjectivesofinternalcontrolforaninventorymanagementprocessareto
provideassurancethattransactionsareproperlyauthorizedandrecordedandthat
A) Independentinternalverificationofactivityreportsisestablished.
Transferstothefinishedgoodsdepartmentaredocumentedbyacompleted
B) productionreportandaqualitycontrolreport.
C) Productionordersareprenumberedandsignedbyasupervisor.
3CORRECT
D) Custodyofworkinprocessandfinishedgoodsisproperlymaintained.
Whichofthefollowingcontrolactivitieswouldbemostlikelytoassistinreducingthe
controlriskrelatedtotheoccurrenceofinventorytransactions?
A) Inventorymanagerdoesnothaveabilitytorecordinventorytransactions.
Summaryofthereceivingreportsisindependentlycomparedtotheinventory
B) statusreport.
Inventoryisperiodicallyreviewedforslowmovingorobsoleteitems,whichmay
C) requireawritedown.
D) Subsidiaryledgersareperiodicallyreconciledwithinventorycontrolaccounts.
4
INCORRECT
WhichofthefollowingisnotatypicaldocumentincludedintheInventory
ManagementProcess?
A) Receivingreport.
B) Purchaseorder.
C) Inventorystatusreport.
5
INCORRECT
D) Shippingorder.
Whichofthefollowingisnotamajorfunctionintheinventorymanagementprocess?
Inventorymanagement.
A)
B) Manufacturing.
C) Receiving.
6
INCORRECT
D) Costaccounting.
Whichofthefollowingisnotaroleoftheinventorymanagementfunction(notthe
inventorymanagementprocessasawhole)?
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A)
Authorizationofproduction.
B) Maintenanceofthecostofmanufacturingincostrecords.
C) Maintenanceofinventoryatappropriatelevels.
7
INCORRECT
D) Issuanceofpurchaserequisitions.
Whichofthefollowingwouldmostlikelybeaninternalcontrolactivitydesignedto
detecterrorsandfraudconcerningthecustodyofinventory?
A) Periodicreconciliationofworkinprocesswithjobcostsheets.
B) Segregationoffunctionsbetweengeneralaccountingandcostaccounting.
Independentcomparisonsoffinishedgoodsrecordswithcountsofgoodson
C) hand.
D) Approvalofinventoryjournalentriesbythestorekeeper.
8CORRECT
9
INCORRECT
Independentinternalverificationofinventory(i.e.,propersegregationofduties)
occurswhenemployeeswho
Issuerawmaterialsobtainmaterialsrequisitionsforeachissueandpreparedaily
A) totalsofmaterialsissued.
Comparerecordsofgoodsonhandwithphysicalquantitiesdonotmaintainthe
B) recordsorhavecustodyoftheinventory.
Obtainreceiptsforthetransferofcompletedworktofinishedgoodspreparea
C) completedproductionreport.
Areindependentofissuingproductionordersupdaterecordsfromcompletedjob
D) costsheetsandproductioncostreportsonatimelybasis.
Keysegregationsofdutiesintheinventorymanagementprocessincludeseparation
ofallofthefollowingexcept:
A) Inventorymanagementfromcostaccounting.
B) Costaccountingfromthegeneralledgerfunction.
C) Supervisionofphysicalinventoryfromperpetualinventoryrecordkeeping.
D) Costaccountingfromreviewofvariancereports.
10
INCORRECT
Whichofthefollowingisnotaninherentriskfactorintheauditoftheinventory
managementprocess?
A) Thelackofprenumberedmaterialsrequisitionforms.
B) Industrycompetition.
C) Theacquisitionofrawmaterialsfromrelatedparties.
D) Technologychanges.
11
INCORRECT
Whichofthefollowingcontrolactivitieswouldbemosteffectiveinmaintaining
accurateperpetualinventoryrecords?
Independentmatchingofpurchaseorders,receivingreports,andvendor
A) invoicespriortopayment.
B) Independentcountofgoodsreceivedbystoreroompersonnel.
Periodicindependentreconciliationofinventorycontrolaccountwiththe
C) subsidiarydetailedrecords.
Periodicindependentreconciliationofperpetualrecordswithactualgoodson
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D) hand.
12
INCORRECT
Themosteffectivecontrolforpreventingfictitiousinventoryis
A) Usingaperpetualinventorysystem.
B) Usingaperiodicinventorysystem.
C) Segregationofduties.
13
CORRECT
14
INCORRECT
D) Periodicreviewofinventorylevelsbythoseinchargeofinventoryrequisitions.
Anauditor?stestsofcontrolsovertheissuanceofrawmaterialstoproductionwould
mostlikelyinclude
Reconciliationofrawmaterialsandworkinprocessperpetualinventoryrecords
A) togeneralledgerbalances.
Inquiryofthecustodianabouttheproceduresfollowedwhendefectivematerials
B) arereceivedfromvendors.
Observationthatrawmaterialsarestoredinsecureareasandthatstoreroom
C) securityissupervisedbyaresponsibleindividual.
Examinationofmaterialsrequisitionsandreperformanceofentitycontrols
D) designedtoprocessandrecordissuances.
Whichofthefollowinginternalcontrolactivitiesismostlikelytoaddressthe
completenessassertionforinventory?
A) Theworkinprocessaccountisperiodicallyreconciledwithsubsidiaryrecords.
Employeesresponsibleforcustodyoffinishedgoodsdonotperformthe
B) receivingfunction.
C) Receivingreportsareprenumberedandperiodicallyreconciled.
Thereisaseparationofdutiesbetweenpayrolldepartmentandinventory
D) accountingpersonnel.
15
INCORRECT
16
INCORRECT
Anentitymaintainsperpetualinventoryrecordsinbothquantitiesandmonetary
amounts.Ifthelevelofcontrolriskweresetathigh,anauditorwouldprobably
Insistthattheentityperformphysicalcountsofinventoryitemsseveraltimes
A) duringtheyear.
B) Applygrossprofitteststoascertainthereasonablenessofthephysicalcounts.
C) Increasetheextentoftestsofcontrolsoftheinventorysystem.
Requestthattheentityschedulethephysicalinventorycountattheendofthe
D) year.
Anentitymaintainsperpetualinventoryrecordsintermsofbothquantitiesand
monetaryamounts.Iftheassessedlevelofcontrolriskishigh,theauditorwould
probably
A) Insistthattheentitytakeaphysicalcountofinventoryatleastfourtimesayear.
B) Requestthattheentitytakethephysicalcountonorverynearyearend.
C) Relymainlyontestsofcontrolsintheinventoryandwarehousingarea.
Relyonanalyticalprocedures(i.e.grossprofittestandinventoryturnover)to
D) ascertainthereasonablenessofthephysicalcount.
17
INCORRECT
Adecreaseininventoryturnoverthatisnotconsistentwiththechangeinsalesmay
signaltotheauditor
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A)
Anoverstatementofendinginventory.
B) Theexistenceofmanyopenpurchaseorders.
C) Purchasesfromrelatedparties.
D) Duplicatepaymentsoninventoryorders.
18
INCORRECT
Whileobservinganentity?sannualphysicalinventorycount,anauditorrecorded
testcountsforseveralinventoryitemsandnoticedthatcertaintestcountswere
higherthanrecordedquantitiesintheentity?sperpetualrecords.Thissituationcould
betheresultoftheentity?sfailuretorecord
A) Purchasereturns.
B) Salesreturns.
C) Sales.
D) Eithersalesorpurchasereturns.
19
INCORRECT
Afteraccountingforasequenceofinventorytags,anauditortracesasampleoftags
tothephysicalinventorylistingtoobtainevidencethatallitems
A) Includedinthelistinghavebeencounted.
B) Representedbyinventorytagsareincludedinthelisting.
C) Includedinthelistingarerepresentedbyinventorytags.
D) Representedbyinventorytagsarebonafide.
20
INCORRECT
Whenauditingmerchandiseinventoryatyearend,theauditorperformsapurchase
cutofftesttoobtainevidencethat
Allgoodspurchasedbeforeyearendarereceivedbeforethephysicalinventory
A) count.
Nogoodsheldonconsignmentforcustomersareincludedintheinventory
B) balance.
C) Goodsobservedduringthephysicalcountarepledgedorsold.
D) Allgoodsownedatyearendareincludedintheinventorybalance.
21
INCORRECT
Inquiriesofwarehousepersonnelconcerningpossiblyobsoleteorslowmoving
inventoryitemsprovideassuranceaboutmanagement?sassertionof
A) Completeness.
B) Existence.
C) Presentation.
D) Valuation.
22
INCORRECT
Periodicorcyclecountsofselectedinventoryitemsaremadeatvarioustimes
duringtheyearratherthanviaasingleinventorycountatyearend.Whichofthe
followingisnecessaryiftheauditorplanstoobserveinventoryatinterimdates?
A) Completerecountsareperformedbyindependentteams.
B) Perpetualinventoryrecordsaremaintained.
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C) Unitcostrecordsareintegratedwithproductionaccountingrecords.
D) Inventorybalancesarerarelyatlowlevels.
23
INCORRECT
Afteraccountingforasequenceofinventorytags,anauditortracesasampleoftags
tothephysicalinventorylistingtoobtainevidencethatalloftheselecteditems
Representedbyinventorytagsareactualinventoryownedbytheentity(Rights
A) andobligations).
B) Includedontheinventorylistinghavebeencounted.
Representedbyinventorytagsareincludedintheentity?sinventorybalance
C) (Completeness).
D) Includedinthelistingarerepresentedbyinventorytags(Existence).
24
INCORRECT
Whichofthefollowingisnotoneoftheauditor?sobjectivesrelatingtothe
examinationofinventoriesinafinancialstatementaudit?
Verifyingthattheentityhasusedproperinventorypricing.
A)
B) Verifyingthattheinventorycountedisactuallyownedbytheentity.
Verifyingthatallinventoryownedbytheentityisonhandatthemain
C) warehousinglocationforthephysicalcount.
D) Ascertainingthephysicalquantitiesofinventoryonhand.
25
INCORRECT
Anauditorwouldmostlikelymakeinquiriesofproductionandsalespersonnel
concerningpossibleobsoleteorslowmovinginventorytosupportmanagement?s
assertionof
A) Rightsandobligations.
B) Presentationanddisclosure.
C) Existenceoroccurrence.
26
CORRECT
D) Valuationandallocation.
Inventoryobsolescencerelatesto
A) Completeness.
B) Occurrence.
C) Valuationandallocation.
D) Classification.
27
INCORRECT
Anauditorwouldprobablybeleastinterestedinwhichofthefollowingfieldsinan
electronicperpetualinventoryfile?
A) Economicreorderquantity.
B) Warehouselocation.
C) Dateoflastpurchase.
D) Quantitysold.
28
CORRECT
Whichofthefollowingauditprocedureswouldprobablyprovidethemostreliable
evidenceconcerningtheentity?sassertionofrightsandobligationsrelatedto
inventory?
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Tracingoftestcountsnotedduringtheentity?sphysicalcounttotheentity?s
A) summarizationofquantities.
Inquiryofmanagementtodeterminewhethertherearesignificantpurchase
B) commitmentsthatshouldbeconsideredfordisclosure.
Selectionofthelastfewshippingadvicesusedbeforethephysicalcountand
C) determinationofwhethertheshipmentswererecordedassales.
Duringphysicalobservationofinventoryverifythat?billandhold?inventoryis
D) segregatedandnotincludedintheendinginventorycount.
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