Multiple Choice Questions
1. Auditors use analytical procedures to help identify potential misstatements in inventory. Which of the following would not be useful for this purpose?
a. Calculating inventory turnover
b. Aging inventory
c. Comparing the percent change in inventory with the percent change in sales
d. All of the above would be useful.
2. The auditor's analytical procedures are facilitated if the client:
a. Uses a standard cost system that produces variance reports
b. Segregates obsolete inventory before the physical inventory count
c. Corrects reportable conditions in internal control before the beginning of the audit
d. Reduces inventory balances to the lower of cost or market
3. Which of the following controls would be most effective in ensuring that recorded purchases are free of material errors?
a. The receiving department compares the quantity ordered on purchase orders with the quantity received, indicated on receiving reports.
b. Vendors' invoices are compared with purchase orders by an employee who is independent of the receiving department.
c. Receiving reports require the signature of the individual who authorized the purchase.
d. Accounts payable personnel match purchase orders, receiving reports, and vendors' invoices before approval for payment.
4. Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department?
a. Comparing the vendor's invoice with the receiving report.
b. Canceling supporting documentation after payment.
c. Verifying mathematical accuracy of the vendor's invoice.
d. Approving the invoice for payment.
5. To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all:
a. Vendors' invoices
b. Purchase orders
c. Receiving reports
d. Canceled checks
6. Tracing debits from the inventory account to receiving reports and purchase orders provides evidence that:
a. All receipts of merchandise were properly recorded.
b. Recorded inventory purchases were for goods received and were properly authorized.
c. All vendor invoices have been properly recognized as a purchase and payable.
d. Inventory is not understated.
7. After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory list and reconciles the sequences counted to the inventory list to obtain evidence that all items:
a. Included in the list have been counted
b. Represented by inventory tags are included in the list
c. Included in the list are represented by inventory tags
d. Represented by inventory tags are bona fide
8. Which of the following is not one of the independent auditor's objectives regarding the examination of inventories?
a. Verifying that inventory counted is owned by the client
b. Verifying that the client has used proper inventory pricing
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
9. The auditor tests the quantity of materials charged to work in process by tracing these quantities from the work-in-process accounts to:
a. Cost ledgers
b. Perpetual inventory records
c. Receiving reports
d. Material requisitions
10. Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
a. Examining unusual relationships between monthly accounts payable balances and recorded cash payments
b. Reconciling vendors' statements to the file of receiving reports to identify items received just before the balance sheet date
c. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period
d. Investigating payables recorded just before and just after the balance sheet date to determine whether they are supported by receiving reports