CPA Auditing and Attestation (AUD) : Inventory Cycle
Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)
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Example Questions
Example Question #1 : Inventory Cycle
A physical inventory is taken on a “cut-off date”. This procedure is necessary to ensure.
ownership
authorization
reasonableness
completeness
completeness
Taking a physical inventory at a cut-off date ensures that all of the inventory that is appropriate to be reported will be included in the financial statements. The auditor sets the cut-off date and traces the amount to the accounting records to ensure that the records include all the inventory.
Example Question #2 : Performing Further Procedures
A ___________ inventory system is best used for high dollar items
recurring
concurrent
perpetual
periodic
perpetual
A perpetual inventory provides a real time record of inventory values. Items purchased are recorded to the inventory account at the time of purchase. High dollar inventory items are particularly important to properly value the inventory account.
Example Question #3 : Performing Further Procedures
Inquiries of warehouse personnel concerning possible obselete or slow moving inventory items provide assurance about management's assertion of:
Presentation
Completeness
Existence
Valuation
Valuation
Inquiries of warehouse personnel concerning possible obselete or slow moving inventory items provide assurance about management's assertion of valuation (has the inventory been properly valued and recorded.)
Example Question #4 : Performing Further Procedures
The warehouse manager is responsible for ensuring that high-end merchandise is in the locked section of the building. This is an example of
A reconciliation procedure
A physical control
A review procedure
An authorization procedure
A physical control
Physical control provides a physical barrier to the asset. They consist of policies such as insurance, or kinetic barriers such as locks, secure areas, etc.
Example Question #2 : Inventory Cycle
An auditor generally tests the segregation of duties related to inventory by:
Analytical procedures and invoice recomputation
Test counts and cutoff procedures
Document inspection and reconciliation
Personal inquiry and observation
Personal inquiry and observation
The independent auditor's direct personal knowledge, based on personal inquiry and observation, are auditing procedures commonly used to test the segregation of duties.
Example Question #6 : Performing Further Procedures
Of the following duties included in the inventory cycle, which should be segregated to maintain proper internal controls?
Warehousing
All of the answer choices are correct
Purchasing
Receiving
All of the answer choices are correct
All of these duties, in addition to shipping, would need to be segregated in order to maintain proper internal controls.
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