The following questions concern internal controls, and the testing of internal controls, in the inventory and warehousing cycle. Choose the best response.
a. For control purposes, the quantities of materials ordered may be omitted from the
copy of the purchase order that is
(1) returned to the requisitioner.
(2) forwarded to the receiving department.
(3) forwarded to the accounting department.
(4) retained in the purchasing department’s files.
b. For several years, a client’s physical inventory count has been lower than the amount shown on the books at the time of the count. Contributing to the inventory problem could be material weaknesses in internal control that led to failure to record some
(1) purchases returned to vendors.
(2) sales returns received.
(3) sales discounts allowed.
(4) cash purchases.
c. Which of the following internal control procedures most likely would be used to
maintain accurate inventory records?
(1) Perpetual inventory records are periodically compared with the current cost of
individual inventory items.
(2) A just-in-time inventory ordering system keeps inventory levels to a desired minimum.
(3) Requisitions, receiving reports, and purchase orders are independently matched
before payment is approved.
(4) Periodic inventory counts are used to adjust the perpetual inventory records.
21-14 (OBJECTIVES 21-1, 21-4, 21-5, 21-6) The following questions deal with tests of details of
balances and substantive analytical procedures for inventory. Choose the best response.
a. An auditor selected items for test counts while observing a client’s physical inventory.
The auditor traced the test counts to the client’s inventory listing. This procedure
likely obtained evidence about which balance-related audit objective for inventory?
(1) Existence
(2) Rights and obligations
(3) Completeness
(4) Realizable value
b. If the perpetual records show lower quantities of inventory than the physical count,
an explanation of the difference might be unrecorded
(1) sales.
(2) sales discounts.
(3) purchases.
(4) purchase discounts.
c. An inventory turnover analysis is useful to the auditor because it may detect
(1) inadequacies in inventory pricing.
(2) methods of avoiding cyclical holding costs.
(3) the existence of obsolete merchandise.
(4) the optimum automatic reorder points.
