Connect Access Card for Principles of Auditing & Other Assurance Services
21st Edition
ISBN: 9781260299366
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Chapter 13, Problem 32EOQ
To determine
Identify the appropriate answer related to the information provided by the plant manager.
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Which of the following procedures is usually performed by the auditor to determine if obsolete inventory exists?
a. Footing the inventory subsidiary ledger
b. Analysis of inventory turnover and sales reports
c. Sample the inventory reported by the client, examine the purchase date and receiving reports
d. Confirmation of inventory with client’s customers
Which statement is true?
a. The incomplete recording of asset disposals understates the asset balance
b. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well to lower the subsequent depreciation expenses
c. Management never over-accrue impairments on machinery because it reduces the balance of assets
d. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well because auditors will be more skeptic over the performance that is “too good to be true”
In which of the following situations would observation not provide the most compelling audit evidence?
a. Documentation of a production or accounting process.
b. Analysis of the security of a storeroom or facility.
c. Verification of the existence of production equipment.
d. Identification of excess inventory.
Before the physical examination, the auditor obtains a copy of theclient’s inventory instructions and reviews them with the controller. In obtaining an understanding of inventory procedures for a small manufacturing company, these deficienciesare identified: Shipping operations will not be completely halted during the physicalexamination, and there will be no independent verification of the original inventory countby a second counting team. Evaluate the importance of each of these deficiencies and stateits effect on the auditor’s observation of inventory
Chapter 13 Solutions
Connect Access Card for Principles of Auditing & Other Assurance Services
Ch. 13 - Prob. 1RQCh. 13 - K-J Corporation has current assets of 5 million...Ch. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Explain the use of a system of authorizations for...Ch. 13 - Moultrie Company discovered recently that a number...Ch. 13 - Does a failure to record the retirement of...Ch. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - Prob. 10RQ
Ch. 13 - Prob. 11RQCh. 13 - Prob. 12RQCh. 13 - Prob. 13RQCh. 13 - Prob. 14RQCh. 13 - Prob. 15RQCh. 13 - Gibson Manufacturing Company acquired new factory...Ch. 13 - Prob. 17RQCh. 13 - Do the auditors question the service lives adopted...Ch. 13 - Prob. 19RQCh. 13 - Explain how the existence of lease agreements may...Ch. 13 - Prob. 21RQCh. 13 - Prob. 22QRACh. 13 - Prob. 23QRACh. 13 - Gruen Corporation is a large diversified company...Ch. 13 - Prob. 25QRACh. 13 - Prob. 26QRACh. 13 - Prob. 27QRACh. 13 - Prob. 28QRACh. 13 - Prob. 29QRACh. 13 - Prob. 30QRACh. 13 - Prob. 31QRACh. 13 - To assure accountability for fixed-asset...Ch. 13 - Prob. 32BOQCh. 13 - Which of the following is an internal control...Ch. 13 - Which of the following accounts should be reviewed...Ch. 13 - Prob. 32EOQCh. 13 - Prob. 32FOQCh. 13 - Which of the following statements is not typical...Ch. 13 - Prob. 32HOQCh. 13 - Prob. 32IOQCh. 13 - An effective procedure for identifying unrecorded...Ch. 13 - Which of the following is not an overall test of...Ch. 13 - Prob. 32LOQCh. 13 - Prob. 33OQCh. 13 - Analysis of which account is least likely to...Ch. 13 - Prob. 34BOQCh. 13 - Prob. 34COQCh. 13 - Prob. 34DOQCh. 13 - A search for overstated property, plant, and...Ch. 13 - The following are typical questions that might...Ch. 13 - Prob. 36PCh. 13 - Prob. 37PCh. 13 - Chem-Lite, Inc., maintains its accounts on the...Ch. 13 - Prob. 39PCh. 13 - You are reviewing the property, plant, and...
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- An auditor is examining a nonpublic company’s inventory procurement system and has decided to perform tests of controls. Under which of the following conditions do GAAS require tests of controls be performed by an auditor?a. Significant weaknesses were found in the company’s internal control.b. The auditor hopes to reduce the amount of work to be done in assessing inherent risk.c. The auditor believes that testing the controls could lead to a reduction in overall audit time and cost.d. Tests of controls are always performed when the auditor begins to assess control risk.arrow_forwardAn auditor discovered the following errors and irregularities while performing tests of controls: Inventory damaged by rain remains in inventory at full cost. Required: What control would have prevented or detected each of the aforementioned errors/irregularities? What tests should the auditor perform to test each control? To which financial statement assertion does the error or irregularity relate?arrow_forwardWhen auditing inventories, an auditor would least likely verify thata. All inventory owned by the client is on hand at the time of the count.b. The client has used proper inventory pricing.c. The financial statement presentation of inventories is appropriate.d. Damaged goods and obsolete items have been properly accounted for.arrow_forward
- The primary reason why auditors observe client's physical inventory is to make sure the amount of inventory reported in the Statement of Financial Position actually exists and fully owned by the company.a. Explain various audit procedures that should be performed by auditor to determine the slow-moving or obsolete items included in the inventory count. What is the important of attendance of the auditors during the physical inventory count?arrow_forwardDuring the taking of physical inventory, the controller intentionally withheld several inventory tags from the employees responsible for the physical count. After the auditor left the client’s premises at the completion of the inventory observation, the controller recorded nonexistent inventory on the tags and thereby significantly over-stated earnings. How could the auditor have uncovered the misstatement, assuming that there are no perpetual records?arrow_forwardDuring the taking of physical inventory, the controller intentionallywithheld several inventory tags from the employees responsible for the physical count.After the auditor left the client’s premises at the completion of the inventory observation,the controller recorded nonexistent inventory on the tags and thereby significantly overstated earnings. How could the auditor have uncovered the misstatement, assuming thatthere are no perpetual records?arrow_forward
- As the auditor of Sample Limited you note the following matters relating to the internal control of its sales system. i) The sales department accepts order without first checking the inventory level with the warchouse, ii) Goods are dispatched to customers without recording customer's signatures as proof of receipt of goods. iii) Orders of goods placed by customers are properly recorded but they are not forwarded timely to the dispatch department for fulfilling the order. For each of the above deficiencies, identify the possible impact on the company's operation and recommend a control to address it. Explain why an auditor cannot perform only test of control in an audit.arrow_forwardAssuming that the auditor properly documents receiving reportnumbers as a part of the physical inventory observation procedures, explain how theproper cutoff of purchases, including tests for the possibility of raw materials in transit,should be verified later in the auditarrow_forwardThe following are typical questions that might appear on an internal control questionnaire relating to plant and equipment: Has a dollar minimum been established for expenditures to be capitalized? Are subsidiary ledgers for plant and equipment regularly reconciled with general ledger controlling accounts? Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of risks of material misstatements.arrow_forward
- As a result of management's refusal to permit the auditor to physically examine inventory, theauditor must depart from the unmodified opinion audit report because A. the scope of the audit has been restricted B. the scope of the audit has been restricted by circumstances beyond either the client's orauditor's control. C. the financial statements have not been audited in accordance with GAAS D. the financial statements have not been prepared in accordance with GAAP.arrow_forwardAt the completion of an inventory observation, the controllerrequested the auditor to give him a copy of all recorded test counts to facilitate the correction of all discrepancies between the client’s and the auditor’s counts. Should the auditorcomply with the request? Why?arrow_forwardDuring the audit of a large manufacturing company, the auditor did not observe all locations of physical inventory. The auditor chose a random number of sites to visit, and the company’s internal auditors visited the other sites. The auditor has confidence in the competence and objectivity of the internal auditors. The auditor personally observed only about 20% of the total inventory, but neither the auditor nor the internal auditors noted any exceptions in the inventory process. What is the appropriate audit report in this situation: Qualified, or Unqualified? Explain briefly.arrow_forward
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