Chap012 - Chapter 12 - Inventories and Cost of Goods Sold...

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Chapter 12 - Inventories and Cost of Goods Sold Chapter 12 Inventories and Cost of Goods Sold True / False Questions 1. Observation of inventories is a generally accepted auditing standard. True False 2. The receiving department should accept only goods for which there is an approved purchase order on hand. True False 3. For good internal control over purchase transactions, purchases should be made from approved vendors by the department needing the goods. True False 4. Auditors should not review the client's planning of the physical inventory. True False 5. The proper cutoff of inventories is best achieved when the client uses prenumbered purchase orders. True False 6. The lower of cost or market test by the auditors is generally designed to assure that inventories are not valued above their net realizable values. True False 7. When the auditors cannot satisfy themselves as to the accuracy of ending inventory and a material misstatement may exist, they normally may still give an unqualified opinion on the client's income statement. True False 12-1
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Chapter 12 - Inventories and Cost of Goods Sold 8. To test the client's cutoff of inventories, the auditors will make a record of the serial number of the final receiving and shipping documents used prior to the taking of the physical inventory. True False 9. The use of a tagging system for inventory taking is designed to prevent double counting of goods. True False 10. The examination of warehouse receipts is not sufficient verification of a material amount of goods stored in public warehouses. True False Multiple Choice Questions 11. An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all A. Cash disbursements. B. Approved vouchers. C. Receiving reports. D. Vendors' invoices. 12. Which of the following is not true relating to the auditors' observation of the client's physical inventory? A. The auditors should evaluate the client's planning of the physical inventory. B. The auditors should make certain that consigned items from suppliers are included in physical inventory totals. C. The auditors should evaluate the adequacy of the client's counting procedures. D. The auditors should take test counts of the client's inventory. 12-2
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Chapter 12 - Inventories and Cost of Goods Sold 13. A receiving department compares inventory items received with copies of purchase orders. The purchase orders list the name of the vendor and do not list the quantities of the material ordered. Using the purchase orders, the receiving department is most likely to detect: A. Deliveries for which no purchase order was issued.
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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Chap012 - Chapter 12 - Inventories and Cost of Goods Sold...

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