What is the primary reason we perform physical inventory observations? A. To obtain sufficient appropriate audit evidence over the existence and condition of inventory to meet the objectives of the professional auditing standards B. To obtain sufficient appropriate audit evidence that invento
1. What is the primary reason we perform physical inventory observations?
A. To obtain sufficient appropriate audit evidence over the existence and condition of inventory to meet the objectives of the professional auditing standards
B. To obtain sufficient appropriate audit evidence that inventory is recorded at the correct cost on the financial statements
C. To provide assurance over the time it takes inventory to leave the warehouse and arrive at the customer
D. To verify assumptions used in management's estimates regarding inventory reserves
2. What piece of information gained during the understanding of the inventory process would be LEAST relevant to the scoping of inventory locations?
A. The company hired a new count supervisor for one of their largest locations
B. Book to physical adjustments were material in the prior year for 2 locations
C. Cycle count accuracy rates have been greater than management's targets in the prior year and current year to date
D. WIP inventory takes longer to count
3. What is a factor to consider when scoping Testing Locations?
A. Significance/volatility of inventory loss/shrinkage
B. Types of facilities the inventory is stored in (warehouse vs retail shop)
C. Nature of the company's counting procedures (cycle count vs wall-to-wall)
D. The speed in which counting procedures are executed
4. Assume that 50% of a client's inventory is located in 2 warehouses subject to wall-to-wall counts at period-end and the remaining 50% of the inventory is located across 110 retail locations around the US subject to periodic cycle counts. The retail locations hold similar inventory for sale to customers; use the same inventory management system; and utilize the same cycle count program which is monitored centrally. There are no locations which have an increased risk of material misstatement based on risk assessment procedures.
What is an appropriate testing approach based on the facts below?
A. Observe inventory at the 2 warehouses only
B. Observe inventory at the 2 warehouses as well as 10 of the retail locations
C. Observe inventory at 5 retail stores only
D. Observe inventory at 2 of the warehouses and combine the sales facilities into 1 Count Location, spreading test counts across all locations
5. Which is true when combining multiple facilities into one Count Location?
A. If we conclude that multiple facilities can be combined into one Count Location, we are only required to observe counts at one of the facilities.
B. Individual counters do not need to be the exact same at each facility as long as they have similar levels of experience, similar qualifications, and are supervised by the same people.
C. The nature of the inventory at each location can differ as long as the control environment and systems are the same
D. The geographic location of the facilities is irrelevant as long as there are common count teams
6. What is true as we conclude whether we have done enough work to reduce the risk of material misstatement to a sufficiently low level?
A. Once we select Testing Locations based on quantitative and qualitative factors, no additional procedures are required over the remaining locations
B. We must select locations that include all types of counting procedures (cycle counts, wall-to-wall counts, third party, etc)
C. We should assess the locations not selected for testing to identify any risk with these locations
D. We should ensure the inventory balance not selected for testing is below performance materiality
7. What is one of the factors to consider when determining the risk profile of inventory locations NOT selected for testing?
A. Entity level or other direct transactional controls in place to monitor inventory levels or count procedures
B. Multiples of SUM represented by the untested balance
C. Travel distance for PwC counters
D. Whether all categories of inventory (RM, FG, WIP) have been subject to observation regardless of materiality
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2. What piece of information gained during the understanding of the inventory process would be LEAST relevant to the scoping of inventory locations?
A. The company hired a new count supervisor for one of their largest locations
B. Book to physical adjustments were material in the prior year for 2 locations
C. Cycle count accuracy rates have been greater than management's targets in the prior year and current year to date
D. WIP inventory takes longer to count
by Bartleby Expert5. Which is true when combining multiple facilities into one Count Location?
A. If we conclude that multiple facilities can be combined into one Count Location, we are only required to observe counts at one of the facilities.
B. Individual counters do not need to be the exact same at each facility as long as they have similar levels of experience, similar qualifications, and are supervised by the same people.
C. The nature of the inventory at each location can differ as long as the control environment and systems are the same
D. The geographic location of the facilities is irrelevant as long as there are common count teams
by Bartleby Expert7. What is one of the factors to consider when determining the risk profile of inventory locations NOT selected for testing?
A. Entity level or other direct transactional controls in place to monitor inventory levels or count procedures
B. Multiples of SUM represented by the untested balance
C. Travel distance for PwC counters
D. Whether all categories of inventory (RM, FG, WIP) have been subject to observation regardless of materiality
by Bartleby Expert
