1. List at least five reasons that inventory is a complex accounting and auditing area.

2. Following is a list of activities in the acquisition and payment cycle for inventory and cost of goods sold. List at least three controls for each activity below and explain how to ensure good amount of control is proceeded.

a. Requisition for goods and services

b. Purchase of goods and services

c. Receipt of, and accounting for, goods and services

d. Approval of items for payment

e. Cash disbursements

3. Following is a list of substantive tests could be performed in auditing inventory cycle. Explain the understanding of the test, how it occurred, what acceptable level should be achieved, and what assertions could be addressed through the test.

a. Physical inventory test

i. Complete in year end

ii. Occurred before year end

b. Trace counts

c. Year-end cut-off test

d. Test inventory cost

e. Test standard costing system

f. Test perpetual inventory system