1. The auditor's inventory observation test counts are traced to the client's inventory listing to test for which of the following financial statement assertions?
a. Completeness
b. Existence
c. Valuation
d. Presentation and disclosure
2. Consider a nonpublic company where an opinion on internal controls will not be issued. What is the most likely course of action that an auditor would take after determining that performing substantive tests on inventory will take less time than performing tests of controls?
a. Assess control risk at the minimum level.
b. Perform both tests of controls and substantive tests on inventory.
c. Perform only substantive tests on inventory.
d. Perform only tests of controls on inventory.
3. Which of the following would the auditor likely do to obtain assurance that all inventory items in a client's inventory listing are valid?
a. Trace inventory tags noted during the auditor's observation to items listed in receiving reports and vendors' invoices.
b. Vouch items listed in receiving reports and vendors' invoices to the inventory listing.
c. Trace inventory tags noted during the auditor's observation to items in the inventory listing.
d. Trace items in the inventory listing to inventory tags and the auditor's recorded count sheets.
4. When companies use automated inventory systems and information technology (IT) extensively, evidence may be available only in electronic form. What is an auditor's best course of action in such situations?
a. Assess the control risk as high.
b. Use audit software to perform analytical procedures.
c. Use generalized audit software to extract evidence from client databases.
d. Perform limited tests of controls over electronic data.