SOLVED

16) A common inventory observation procedure is to select a random sample of tag numbers and identify the tag with that number attached to the actual inventory item. The audit objective being achieved by this procedure is: A) inventory as recorded on tags actually exists (existence). B) existing inventory is counted and tagged (completeness). C) inventory is counted accurately (accuracy). D) inventory is classified correctly (classification). 17) If a client intends to count inventory at an interim date, the auditor should expect there to be all of the following except: A) controls over the preparation and maintenance of perpetual inventory records. B) competent personnel assigned to count the inventory. C) third-party inventory counting specialists. D) an adequately designed plan to count the inventory. 18) A common inventory observation procedure is to be alert for items that are damaged, rust- or dust-covered, or located in inappropriate places. The balance-related audit objective being achieved by this procedure is: A) classification. B) cutoff. C) realizable value. D) rights. 19) The test of details of balance procedure which requires the auditor to account for unused inventory tag numbers to make sure none have been deleted is associated with the audit objective of: A) accuracy. B) existence. C) detail tie-in. D) completeness. 20) Most of the audit testing of the storage of finished goods as well as the shipment of merchandise takes place during the testing of the: A) sales and collection cycle. B) payroll and personnel cycle. C) acquisitions and payments cycle. D) inventory and warehousing cycle. 21) Which of the following situations would most likely require special audit planning? A) Inventory consists of precious stones. B) Some items of factory and office equipment do not bear identification numbers. C) Depreciation methods used on the client’s tax return differ from those used on the books. D) Assets costing less than $500 are expensed even though their expected life exceeds one year. 22) For several years, a client’s physical inventory count has been lower than what was shown on the books at the time of the count so that downward adjustments to the inventory account were required. Contributing to the inventory problem could be weaknesses in internal control that led to the failure to adjust the accounting records for some: A) purchases returned to vendors. B) sales returns received. C) sales discounts allowed. D) cash purchases. 23) The physical counting of inventory may be performed at which of the following times? A) Interim dates On a cycle basis during the year Yes Yes B) Interim dates On a cycle basis during the year No No C) Interim dates On a cycle basis during the year Yes No D) Interim dates On a cycle basis during the year No Yes 24) When an auditor observes that personnel who are responsible for physically counting inventory are not following the inventory instructions, the auditor should: A) contact a client’s supervisor in an attempt to correct the problem. B) modify the client’s physical inventory instructions. C) not discuss the problem with client’s supervisor in order to maintain independence. D) assign audit staff to the inventory count. 25) The auditor’s objective during an observation of a client’s physical inventory count is to: A) discover whether a client has counted a particular inventory item or group of items. B) obtain direct knowledge that the inventory exists and has been properly counted. C) provide an appraisal of the quality of the merchandise on hand on the day of the physical count. D) allow the auditor to supervise the conduct of the count so as to obtain assurance that inventory quantities are reasonably accurate.