Multiple Choice Questions
The following questions deal with tests of details of balances and analytical procedures for inventory. Choose the best response.
a. Which of the following procedures is the auditor least likely to perform on the actual date the physical inventory count is observed?
(1) Examine inventory to make sure that it is tagged by client count teams.
(2) Watch for inventory items that are rust- or dust-covered or otherwise damaged.
(3) Observe client count teams to determine if they are conducting the physical inventory count in accordance with client policies and procedures.
(4) Examine documentation supporting the acquisition of highly material inventory items on hand at the count date.
b. 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.
c. A CPA auditing inventory may appropriately apply attributes sampling to estimate the (1) Average price of inventory items.
(2) Percentage of slow-moving inventory items.
(3) Dollar value of inventory.
(4) Physical quantity of inventory items.