The following questions concern testing the client's internal controls for inventory and warehousing. Choose the best response.

a. When an auditor tests a client's cost accounting records, the auditor's tests are primarily designed to determine that

(1)the internal controls are in accordance with generally accepted accounting principles and are functioning as planned.

(2) quantities on hand have been determined based on acceptable cost accounting techniques that reason¬ ably approximate actual quantities on hand.

(3) physical inventories are in substantial agreement with book inventories.

(4) costs have been properly assigned to finished goods, work in process, and cost of goods sold.

b. The accuracy of perpetual inventory transaction files may be established, in part, by comparing perpetual inventory records with

(1) purchase orders.

(2) purchase requisitions.

(3) receiving reports.

(4) vendor payments.

c. When evaluating inventory controls with respect to segregation of duties, a public accountant would be least likely to

(1) observe procedures.

(2) consider policy and procedure manuals.

(3) inspect documents.

(4) make inquiries.

(AICPA adapted)