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In an audit of inventories, an auditor is least likely to verify that
All inventory owned by the client is on hand at the time of the count.
Observation of inventories is a generally accepted auditing procedure. Which of the following statements about this accepted audting procedure is false?
Regardless of the inventory system maintained by the client, an annual physical count must be made of each item in the inventory, and test counts must be made by the auditor.
Which of the following audit procedures probably provides the most reliable evedence concerning the entity' assertion of rights and obligations related to inventories?
Inspect contracts and agreements to determine whether any inventory is pledged as collateral or subject to any liens.
An auditor is most likely to inspect loan agreements under which an entity's inventories are pleged to support management's financial satement assertions about
Presentation and disclosure.
An auditor selected items for test counts while observing a client's physical invenory. The auditor then traced the test counts to the client's invntory listing. This procedure most likely obtained evidence concerning management"s Assertion of
Completeness
A client maintains perpetual inventory records in both quantities and dolloars. If the assessed risk of material misstatment is high, an auditor will probably
Request the client to schedule the physical inventory items several times during the year.
Periodic or cycle counts of selected inventory items are made at various times during the year rather than  a single inventory count at year-end. Which of the following is necessary if the auditor plans to observe inventories at interim dates?
Perpetual inventory records are maintained.
If the perpetual inventory records showlower quantities of inventory than the physical count, an explanation of the difference might be unrecorded
Purchases
When outside firms of nonaccountants specializing in the taking of physical inventories are used to count, list, price, and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the auditor will ordinarily
Make or observe some physical counts of the inventory, recompute certain inventory calulations, and test certain inventory transactions.
After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items
Represented by inventory tags are included in the listing.
An independent auditor may accept a client's sampling method for the performance of physical inventory only if
The sampling plan has statistical validity.
The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the following could explain the difference?
Credit memos for several items returned by customers had not been recorded
An auditor is most likely to lear of slow-moving inventory through
Review perpetual inventory records
for the week before Moore Company's physical count,  all receiving reports include a notation that they have been prepared prior to the count. For the week after the physical count, all receiving reports indicate that they have been prepared after the count. The receiving department continues to receive goods after the cutoff time while the physical count is in process. To determine the accuracy of the cutof, the auditor should
List the number of tha last receiving report for items included in the physical count.
Which of the following procedures will best detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?
Maintain a perpetual inventory of only the more valuable items with frequent periodic verification of the validity of th perpetual inventory record.
Which of the following is the best audit test to evaluate the accuaracy of the inventory records for materials inventory in a production operation?
Reconcile quanities on hand per physical counts of selected items with perpetual inventory records and verify pricing.
Purchase cutoff procedures should be designed to test whether all inventory
Purhased and received before year-end was recorded.
The audit of year-end physical inventories should include steps to verify tht the client's purchases and sales cutoffs were aequate. The audit steps should be designed to detect whether merchandis included in the physical count a year-end was not recorded as a
Sale in the current period.
An auditor's observation of physical inventories at the main plant at year-end provides diect evidence to support which of the following objectives?
Identification  of obsolete or damaged merchandise to evaluate allowance (reserve)  for obsolescence.
Some firms that dispose of only a small part of their total output by consignment shipments fail to make any distinction between consignment shipments and regular sales. Which of the following suggests that the client's goods have been shippped on consignment?
Large debits to accounts receivable and small periodic credits.
An auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the fiancial statement assertions regarding inventory, including presentatin and disclosure and
Valuation and allocation
During an investigation of unexplained inventory shrikage, an internal auditor is testing inventory additions as recorded in the perpetual inventory records. Because of internal control weaknesses, the information recorded on receiving reports may not be reliable. Under these circumstances, which of the following documents provides the best evidence of additions to inventory?
Vendors' Invoices.
To obtain evidence as to the reasonableness and completeness of inventory balances, auditors often perform analytical procedures. Which of the following quantitative relationships is not applicable to inentory balances?
Debt-to equity ratio.
During the preliminary survey phase of an audit of the organization's production cycle, management stated that the sale of scrap was well controlled. Evidence to veriy that assertion can best be gained by
Comparing the quantities of scrap expected from the production process with the quantities sold.
An auditee uses statistical sampling in the takng of its physical inventory. The independent external auditor should
Observe such test counts as (s)he deems necessary and beome satisfied with the statistical validity of the sample, the precision, and the confidence level.
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