GEN COMBO LL PRINCIPLES OF AUDITING & OTHER ASSURANCE SERVICES; CONNECT AC
21st Edition
ISBN: 9781260427202
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Chapter 12, Problem 25QRA
To determine
Prepare a list of auditing procedures to determine whether slow-moving or obsolete items are included in the physical inventory.
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Students have asked these similar questions
Which of the following procedures is usually performed by the auditor to determine if obsolete inventory exists?
a. Footing the inventory subsidiary ledger
b. Analysis of inventory turnover and sales reports
c. Sample the inventory reported by the client, examine the purchase date and receiving reports
d. Confirmation of inventory with client’s customers
Which statement is true?
a. The incomplete recording of asset disposals understates the asset balance
b. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well to lower the subsequent depreciation expenses
c. Management never over-accrue impairments on machinery because it reduces the balance of assets
d. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well because auditors will be more skeptic over the performance that is “too good to be true”
The primary reason why auditors observe client's physical inventory is to make sure the amount of inventory reported in the Statement of Financial Position actually exists and fully owned by the company.a. Explain various audit procedures that should be performed by auditor to determine the slow-moving or obsolete items included in the inventory count. What is the important of attendance of the auditors during the physical inventory count?
What is the primary purpose of analytical procedures performed during the planning stages of the audit? Please identify the warning signs that were revealed about the inventory balance during analytical procedures that were ignored by the auditors.
Chapter 12 Solutions
GEN COMBO LL PRINCIPLES OF AUDITING & OTHER ASSURANCE SERVICES; CONNECT AC
Ch. 12 - Prob. 1RQCh. 12 - Explain the significance of the purchase order to...Ch. 12 - What segregation of duties would you recommend to...Ch. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - When perpetual inventory records are maintained,...
Ch. 12 - What is meant by a bill and hold scheme?Ch. 12 - What charges and credits may be disclosed in the...Ch. 12 - Prob. 13RQCh. 12 - Prob. 14RQCh. 12 - A well-prepared balance sheet usually includes a...Ch. 12 - Darnell Equipment Company uses the LIFO method of...Ch. 12 - Prob. 17RQCh. 12 - Prob. 18RQCh. 12 - Prob. 19RQCh. 12 - Prob. 20RQCh. 12 - Prob. 21QRACh. 12 - Prob. 22QRACh. 12 - Prob. 23QRACh. 12 - Prob. 24QRACh. 12 - Prob. 25QRACh. 12 - Prob. 26QRACh. 12 - Prob. 27QRACh. 12 - Grandview Manufacturing Company employs standard...Ch. 12 - Prob. 29AOQCh. 12 - Prob. 29BOQCh. 12 - The document issued by a common carrier...Ch. 12 - Which of the following should be included as a...Ch. 12 - Prob. 29EOQCh. 12 - Prob. 29FOQCh. 12 - Instead of taking a physical inventory count on...Ch. 12 - Prob. 29HOQCh. 12 - Prob. 29IOQCh. 12 - Prob. 29JOQCh. 12 - Prob. 29KOQCh. 12 - Prob. 29LOQCh. 12 - Prob. 30OQCh. 12 - Adapted AICPA Task-Based Simulation For each of...Ch. 12 - Prob. 32OQCh. 12 - Prob. 33OQCh. 12 - Prob. 34AOQCh. 12 - Prob. 34BOQCh. 12 - Prob. 34COQCh. 12 - Prob. 34DOQCh. 12 - Prob. 34EOQCh. 12 - Prob. 35OQCh. 12 - Prob. 36PCh. 12 - Prob. 37PCh. 12 - Prob. 38PCh. 12 - Prob. 39PCh. 12 - Prob. 40PCh. 12 - Prob. 41PCh. 12 - Prob. 42PCh. 12 - Prob. 43ITCCh. 12 - Prob. 44ECCh. 12 - Western Trading Company is a sole proprietorship...
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- An auditor discovered the following errors and irregularities while performing tests of controls: Inventory damaged by rain remains in inventory at full cost. Required: What control would have prevented or detected each of the aforementioned errors/irregularities? What tests should the auditor perform to test each control? To which financial statement assertion does the error or irregularity relate?arrow_forwardRequired information Potential Misstatements in the Auditing of Inventory Read the overview below and complete the activities that follow. Because of its importance and typically high dollar value on the balance sheet of a manufacturing entity, the audit of inventory is important and often high risk. As such, auditors must take additional care when auditing this area due to the capacity for both errors and fraud. CONCEPT REVIEW: When identifying misstatements in testing inventory, it is important to consider the control environment to determine if the misstatements found are indicators of client error or intentional fraud. 1. Inventories with a high risk of 2. Purchasing and cash disbursements can provide opportunity for by employees 3. considering information about the client and its environment, the auditors must assess the risks of material misstatement related to assertions about inventory may be warranted as a signficant risk 5. 4 Audit procedures for consignment inventory could…arrow_forwardWhen auditing inventories, an auditor would least likely verify thata. All inventory owned by the client is on hand at the time of the count.b. The client has used proper inventory pricing.c. The financial statement presentation of inventories is appropriate.d. Damaged goods and obsolete items have been properly accounted for.arrow_forward
- In an audit of inventories, an auditor would most likely verify that: a. All inventory owned by the client is on hand at the time of the count. b. The client has used proper inventory pricing to reflect fair market value. c. The financial statement presentation of inventories is appropriate. d. Damaged goods and obsolete items have been recorded at historical cost. e. Goods-in-Transit, shipped to the client F.O.B. destination, are properly included in inventory.arrow_forwardBefore the physical examination, the auditor obtains a copy of theclient’s inventory instructions and reviews them with the controller. In obtaining an understanding of inventory procedures for a small manufacturing company, these deficienciesare identified: Shipping operations will not be completely halted during the physicalexamination, and there will be no independent verification of the original inventory countby a second counting team. Evaluate the importance of each of these deficiencies and stateits effect on the auditor’s observation of inventoryarrow_forwardDuring the taking of physical inventory, the controller intentionallywithheld several inventory tags from the employees responsible for the physical count.After the auditor left the client’s premises at the completion of the inventory observation,the controller recorded nonexistent inventory on the tags and thereby significantly overstated earnings. How could the auditor have uncovered the misstatement, assuming thatthere are no perpetual records?arrow_forward
- During the taking of physical inventory, the controller intentionally withheld several inventory tags from the employees responsible for the physical count. After the auditor left the client’s premises at the completion of the inventory observation, the controller recorded nonexistent inventory on the tags and thereby significantly over-stated earnings. How could the auditor have uncovered the misstatement, assuming that there are no perpetual records?arrow_forward1. What is the primary reason we perform physical inventory observations? A. To obtain sufficient appropriate audit evidence over the existence and condition of inventory to meet the objectives of the professional auditing standards B. To obtain sufficient appropriate audit evidence that inventory is recorded at the correct cost on the financial statements C. To provide assurance over the time it takes inventory to leave the warehouse and arrive at the customer D. To verify assumptions used in management's estimates regarding inventory reserves 2. What piece of information gained during the understanding of the inventory process would be LEAST relevant to the scoping of inventory locations? A. The company hired a new count supervisor for one of their largest locations B. Book to physical adjustments were material in the prior year for 2 locations C. Cycle count accuracy rates have been greater than management's targets in the prior year and current year to date D. WIP inventory takes…arrow_forwardAn auditor is examining a nonpublic company’s inventory procurement system and has decided to perform tests of controls. Under which of the following conditions do GAAS require tests of controls be performed by an auditor?a. Significant weaknesses were found in the company’s internal control.b. The auditor hopes to reduce the amount of work to be done in assessing inherent risk.c. The auditor believes that testing the controls could lead to a reduction in overall audit time and cost.d. Tests of controls are always performed when the auditor begins to assess control risk.arrow_forward
- As the auditor of Sample Limited you note the following matters relating to the internal control of its sales system. i) The sales department accepts order without first checking the inventory level with the warchouse, ii) Goods are dispatched to customers without recording customer's signatures as proof of receipt of goods. iii) Orders of goods placed by customers are properly recorded but they are not forwarded timely to the dispatch department for fulfilling the order. For each of the above deficiencies, identify the possible impact on the company's operation and recommend a control to address it. Explain why an auditor cannot perform only test of control in an audit.arrow_forwardDuring a routine internal audit at a manufacturing company, the auditor discovers that the inventory records do not match the physical stock. What should the auditor's next step be to address this discrepancy? ○ A. Ignore the discrepancy as it's probably a minor error. ○ B. Investigate the discrepancy further to understand its cause and recommend corrective measures. ○ C. Adjust the records to match the physical stock without investigation. ○ D. Immediately accuse the inventory manager of fraud.arrow_forwardAn auditor usually traces the details of the test counts made during the observation of physical inventory counts to a final inventory compilation. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of thephysical inventory count area. Owned by the client.b. Not obsolete.c. Physically present at the time of the preparation of the final inventory schedule.d. Included in the final inventory schedule.arrow_forward
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