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Auditing and Assurance Services, 16e (Arens/Elder/Beasley) Chapter 21 Audit of the Inventory and Warehousing Cycle 21.1 Learning Objective 21-1 1) Receipt of ordered materials by the receiving department will generate the completion of a form called the A) bill of lading. B) receiving report. C) materials requisition. D) inventory acquisition summary. Terms: Receipt of ordered materials generates completion of form Diff: Easy Objective: LO 21-1 AACSB: Reflective thinking 2) ________ is normally characterized as a difficult and complex account to audit. A) Property, plant and equipment B) Cash C) Inventory D) Prepaid insurance Terms: Complex and difficult account to audit Diff: Easy Objective: LO 21-1 AACSB: Reflective thinking 3) Inventory is a complex area to audit for all except which of the following reasons? A) Inventory is often in different locations. B) There are several acceptable valuation methods and some entities use different methods for different types of inventory. C) Inventory is often the largest account on the balance sheet. D) Inventory valuation includes few estimates. Terms: Reasons inventory is complex to audit Diff: Easy Objective: LO 21-1 AACSB: Reflective thinking Auditing and Assurance Services, 14e (Arens) Chapter 21 Audit of the Inventory and Warehousing Cycle Learning Objective 21-1 1) Receipt of ordered materials by the receiving department will generate the completion of a form called the: A) bill of lading. B) receiving report. C) materials requisition. D) inventory acquisition summary. Answer: B Terms: Receipt of ordered materials generate completion of form Diff: Easy Objective: LO 21-1 AACSB: Reflective thinking skills 2) Which of the following would you normally characterize as a difficult and complex account to audit? A) property, plant and equipment B) cash C) inventory D) prepaid insurance Answer: C Terms: Complex and difficult account to audit Diff: Easy Objective: LO 21-1 AACSB: Reflective thinking skills 3) Inventory is a complex area to audit for all but which of the following reasons? A) Inventory is often in different locations. B) There are several acceptable valuation methods and some entities use different methods for different types of inventory. C) Inventory is often the largest account in working capital. D) Inventory valuation includes few estimates. Answer: D Terms: Reasons inventory is complex to audit Diff: Easy Objective: LO 21-1 AACSB: Reflective thinking skills 1 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall What are two factors affecting the complexity of the audit of inventory?Various factors lead to the complexity of the inventory audit:. The type of business done by the organization. ... . The inventory valuation method followed by the organization can also affect the inventory audit. ... . The location of the warehouse will also add to the complexity of the inventory audit.. Why is auditing inventory difficult?When performing an inventory audit, some of the most common challenges faced by the auditor include: Damaged inventory whose value must be adjusted to reflect its actual value to the company. (Valuation issues) Miscounted (intentionally or otherwise) inventory.
Why inventory is often the most difficult and time consuming part of many audits?-Inventory takes many different forms that are difficult for the auditor to fully understand. -The valuation of inventory is difficult due to such factors as the large number of different items involved, the need to allocate the manufacturing costs to inventory, and obsolescence.
Which of the following procedures carried out at an inventory count by an auditor is a test primarily for overstatement of inventory?7 Which of the following procedures carried out at an inventory count by an auditor is a test primarily for overstatement of inventory? A Ensure completeness of sequence of pre-numbered inventory sheets at the conclusion of the count.
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Which of the following is not a reason why inventory is a complex accounting and auditing area?
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