AUD 4.04 - Inventory Cycle

  1. Which three assertions are most important when auditing the inventory cycle?
    • Existence and Occurance
    • Valuation, Allocation, Accuracy
    • Rights and Obligations
  2. What are the textbook-version (perfect world) internal controls used in the inventory cycle?
    • Purchasing: use serially numbered and approved POs
    • Receiving: use blind copy of PO and count the inventory received
    • Warehouse: has custody for separation of duties
    • Shipping: use approved, serially numbered sales order
  3. What inventory balances are required to be validated by the auditor? What is the preferred method of validation?
    • Both the beginning and ending physical inventory accounts.
    • Attendance during the physical count is preferred.
  4. Is it acceptable for the auditor to not be present during the physical inventory count? If so, under which circumstances?
    Yes, the auditor may use alternative procedures to justify the opinion expressed when it is impractical or impossible to observe the physical inventory or when inventories are not material.
  5. The physical inventory is held off-site in a public warehouse, and the auditor cannot be present during the physical count. What method can be used as evidence of the inventory?
    Confirmation
  6. Can an interim count of inventory be used as proof of inventory accuracy?
    Yes, IF there is proof that changes between the interim inventory count and the end of the year are recorded properly.
  7. True / False: The auditor must perform the actual inventory count to verify the end-of-year balance.
    • False
    • In fact, the auditor must not perform the count, but should observe the entity's staff as this also becomes a test of controls.
Author
BethM
ID
332616
Card Set
AUD 4.04 - Inventory Cycle
Description
Becker Review 2017
Updated