AUDITING LL W/ CONNECT <C>
11th Edition
ISBN: 9781307416268
Author: MESSIER
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 13, Problem 13.29P
a.
To determine
Concept Introduction:
To identify:The audit procedure that should be used by independent auditor that change when an entity utilizes a statistical sampling to determine inventory value.
b.
To determine
Concept Introduction:
Audit procedure is a method performed by the auditor, to gather the possible document that helps the auditors to make a strong conclusion. The audit procedure helps to determine the nature of the financial information provided by the customers and all kinds of risks that occur in the financial statements. Audit procedure performs different test of controls to avoid the risks.
10 normal audit procedures that should be performed to verify physical quantities.
Normal audit procedure to verify physical quantities when an entity conductsperiod physical counts of all, or part, of its inventory:
- The Auditor should recheck the current inventory count procedure and ensure whether they are approved.
- The auditor should oversight the physical count.
- The Auditor should make test count if it is necessary.
- The auditor should test a sample from the recorded inventory.
- The Auditor should select the sample items from the compilation engagement and record them into count data.
- The auditor needs to ensure the numbers of purchase and sales cutoff.
- The auditor should recheck the treatment provided to the merchandise.
- Auditor should assure about the merchandise available in the warehouse.
- Auditor should perform the analytical procedure to evaluate the inventory.
- Auditor should ensure whether all inventory recorded correctly and items are classified.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Statistical Sampling Used to Estimate Inventory. ACE Corporation does not conduct acomplete annual physical count of purchased parts and supplies in its principal warehousebut uses statistical sampling to estimate the year-end inventory. ACE maintains a perpetualinventory record of parts and supplies. Management believes that statistical sampling ishighly effective in determining inventory values and is sufficiently reliable, making a physical count of each item of inventory unnecessary.Required:a. List at least 10 normal audit procedures that should be performed to verify physical quantities whenever a client conducts a periodic physical count of all or part of its inventory.(See Appendix Exhibit 9B.1 for procedures.)b. Identify the audit procedures you should use that change or are in addition to normalrequired audit procedures [in addition to those listed in your solution to part (a)] when aclient utilizes statistical sampling to determine inventory value and does not conduct a100…
Before 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 inventory
When a company's financial statements are audited, the principal element an auditor reviews is the reliability of the financial statement assertions. Which of the following audit objectives relate primarily to the financial report assertion of accuracy, valuation and allocation?
Select one:a. Inventory listings are accurately compiled and the totals are properly included in the inventory accounts.b. Inventory quantities include all products, materials and supplies owned by the company that are in transit.c. Inventories exclude items billed to customers or owned by others. d. None of the above
Chapter 13 Solutions
AUDITING LL W/ CONNECT <C>
Ch. 13 - Prob. 13.1RQCh. 13 - Prob. 13.2RQCh. 13 - Prob. 13.3RQCh. 13 - Prob. 13.4RQCh. 13 - Prob. 13.5RQCh. 13 - Prob. 13.6RQCh. 13 - Prob. 13.7RQCh. 13 - Prob. 13.8RQCh. 13 - Prob. 13.9RQCh. 13 - Prob. 13.10RQ
Ch. 13 - Prob. 13.11RQCh. 13 - Prob. 13.12RQCh. 13 - Prob. 13.13RQCh. 13 - Prob. 13.14MCQCh. 13 - Prob. 13.15MCQCh. 13 - Prob. 13.16MCQCh. 13 - Prob. 13.17MCQCh. 13 - Prob. 13.18MCQCh. 13 - Prob. 13.19MCQCh. 13 - Prob. 13.20MCQCh. 13 - Prob. 13.21MCQCh. 13 - Prob. 13.22MCQCh. 13 - Prob. 13.23MCQCh. 13 - Prob. 13.24MCQCh. 13 - Prob. 13.25MCQCh. 13 - Prob. 13.26MCQCh. 13 - Prob. 13.27PCh. 13 - Prob. 13.28PCh. 13 - Prob. 13.29PCh. 13 - Prob. 13.30PCh. 13 - Prob. 13.31PCh. 13 - Prob. 13.32P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 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_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_forwardMatch to the correct Assertions. (Each letter can be used multiple times, once, or not at all): The audit objective that all journal entries were included in the financial statements is related to which of the assertions. During an audit of inventory, it was determined some of the inventory is not owned by the company. This audit procedure most likely is intended to verify management's assertion of. Which of the following management assertions is an auditor most likely testing if the audit objective states that all expenses, such as rent and payroll, were in fact recorded on the trial balance? If an auditor is performing procedures related to the information that is contained in the client's tax footnote, he/she is most likely to obtain evidence concerning management's assertion about. The audit objective that all the transactions and accounts presented in the financial statements represent real sales is related most closely to which of the assertions.…arrow_forward
- A client maintains perpetual inventory records in quantities and in dollars. If the assessed control risk is high, an auditor would probablya. Apply gross profit tests to ascertain the reasonableness of the physical counts.b. Increase the extent of tests of controls relevant to the inventory cycle.c. Request the client to schedule the physical inventory count at the end of the year.d. Insist that the client perform physical counts of inventory items several times during the year.arrow_forwardWhat 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.arrow_forwardDuring the audit of MJ Precious Metals Inc, the auditor observes the physical count at year-end and recalculates the mathematical accuracy of a sample of inventory on hand. Which of the two test of details results in existence assertion? Both test of details results in existence assertion.Recalculating the mathematical accuracy of a sample of inventory on hand.No test shows the detail results in existence assertion.Observing the physical count at year-end.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_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_forwardFor which of the following audit tests would an auditor most likely use attribute sampling? Making an independent estimate of the amount of FIFO Inventory. Examining invoices in support of the valuation of fixed asset additions. Selecting accounts receivable for confirmation of account balances Inspecting employee time cards for proper approval by supervisors.arrow_forward
- From the auditors’ point of view, inventory counts are more acceptable prior to the year-endwhena. Internal control is weak.b. Accurate perpetual inventory records are maintained.c. Inventory is slow moving.d. Significant amounts of inventory are held on a consignment basisarrow_forwardWhich 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”arrow_forwardThe auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of: audit efficiency. accuracy of the perpetual inventory master files. client convenience. audit staff availability.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub