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CHAPTER 14 MULTIPLE CHOICE b1.To strengthen control procedures over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic a. Increase in insurance coverage. b. Inspection of equipment and reconciliation with accounting records. c.Verification of liens, pledges, and collateralizations. d. Accounting for work orders.(AICPA ADAPTED) c2.To improve accountability for fixed asset retirements, management most likely would implement an internal control structure that includes a.Continuous analysis of the repairs and maintenance account. b.Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired. c.Continuous utilization of serially numbered retirement work orders. d.Periodic inspection of insurance policies by internal auditors.(AICPA ADAPTED) b3.From the auditor's point of view, inventory counts are more acceptable prior to the year-end, when a.Internal control is deficient. b.Accurate perpetual inventory records are maintained. c.Inventory is slow moving. d.Significant amounts of inventory are held on consignment.(AICPA ADAPTED) c4.Apex Manufacturing Corporation mass produces eight different products. The controller who is interested in strengthening control procedures over the accounting for materials used in production would be most likely to implement a.An economic order quantity (EOQ) system. b.A job order cost accounting system. c.A perpetual inventory system. d.A separation of duties among production personnel. (AICPA ADAPTED) a5.For several years, a client's physical inventory count has been lower than what was shown on the books at the time of the count so that downward adjustments to the inventory account were required. Contributing to the inventory problem could be deficiencies in internal control that led to the failure to record some a.Purchases returned to vendors. b.Sales returns received. c.Sales discounts allowed. d. Cash purchases.(AICPA ADAPTED) a6.When perpetual inventory records are maintained in quantities and in dollars, and internal control procedures over inventory are deficient, the auditor would probably a.Want the client to schedule the physical inventory count at the end of the year. b.Insist that the client perform physical counts of inventory items several times during the year. c.Increase the extent of tests for unrecorded liabilities at the end of the year. d.Have to disclaim an opinion on the income statement that year.(AICPA ADAPTED) 97 Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. Why inventory stock valuation and the year end inventory count are important to the audit of financial statements?This is due to physical inventory count can provide evidence on existence and completeness. It is also important for us to evaluate whether the inventory reported in the financial statements is correctly valued. The misstatement on inventory not only affects the balance sheet but also the income statement.
When the auditors Cannot satisfy themselves as to the accuracy of ending inventory?7. When the auditors cannot satisfy themselves as to the accuracy of ending inventory and a material misstatement may exist, they normally may still give an unmodified (unqualified) opinion on the client's income statement.
Should a physical inventory be taken at the end of every month?A physical inventory should be taken at the end of every month. During periods of increasing costs, the use of the FIFO method of costing inventory will yield an inventory amount for the balance sheet that is higher than LIFO would produce. A perptual inventory system is an effective means of control over inventory.
How do auditors count inventory?Physical inventory count observation: As mentioned above, auditors will observe either the in-house team or third party that is counting the inventory, to ensure they are comfortable with the procedures in place. The auditors will then do random test counts to validate the numbers.
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From the auditor’s point of view, inventory counts are more acceptable prior to the year-end when
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