Auditing the Inventory Management Process: Answers

Chapter 13 Auditing the Inventory Management Process Answer Key

True / False Questions 1. The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers.
TRUE

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 Develop an understanding of the inventory management process.
Topic: Overview of Inventory Management Process 2. A receiving report records the shipment of goods to customers.
FALSE

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Be able to identify and describe the types of documents and records used in the inventory management process.
Topic: Types of Documents and Records 3. Sale of finished goods is a part of the inventory management process.
FALSE

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Understand the functions in the inventory management process.
Topic: The Major Functions 4. Once the controls in the inventory system have been tested, the auditor sets the level of control risk.
TRUE

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-06 Know how to assess control risk for the inventory system.
Topic: Control Risk Assessment 5. The major control procedure for preventing fictitious inventory transactions from being recorded is proper segregation of duties.
TRUE

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 13-07 Know key internal controls and develop relevant tests of controls for inventory transactions.
Topic: Control Activities and Tests of Controls 6. Inventory should be valued using the lower-of-cost-or-market rule.
TRUE

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision