a.

Which of the following controls will most likely justify a reduced assessed level of control risk for the
occurrence assertion for purchases of inventory?
(1) Receiving reports for inventory additions are accounted for and entry of received goods into the purchases
system is verified by accounting clerks.
(2) The purchases system automatically updates the perpetual inventory master file when transactions are entered
into the purchases journal.
(3) The perpetual inventory system will not allow an addition of inventory to be posted without entry of a valid
receiving report number.
(4) At the close of each day, the system reconciles the perpetual inventory master file to the inventory general ledger
account and generates an exception report when differences exist.

b. For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order
that is
(1) returned to the requisitioner.
(2) forwarded to the receiving department.
(3) forwarded to the accounting department.
(4) retained in the purchasing departments files.

c. Which of the following procedures will best detect the theft of valuable items from an inventory that consists of
hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?
(1) Maintain a perpetual inventory master file of only the more valuable items with frequent periodic verification of
the validity of the perpetuals.
(2) Have an independent CPA firm prepare an internal control report on the effectiveness of the administrative and
accounting controls over inventory.
(3) Have separate warehouse space for the more valuable items with sequentially numbered tags.
(4) Require an authorized officers signature on all requisitions for the more valuable items.

d. When an auditor tests a clients cost accounting records, the auditors tests are primarily designed to determine
that
(1) costs have been correctly assigned to finished goods, work-in-process, and cost of goods sold.
(2) quantities on hand have been computed based on acceptable cost accounting techniques that reasonably
approximate actual quantities on hand.
(3) physical inventories are in substantial agreement with book inventories.
(4) the internal controls are in accordance with accounting standards and are functioning as planned.

e. The accuracy of perpetual inventory master files may be established, in part, by comparing perpetual inventory
records with
(1)purchase requisitions.
(3) purchase orders.
(2) receiving reports.
(4) vendor payments.

f. Which of the following sets of duties related to inventory and warehousing causes the greatest concern about
inadequate segregation of duties?
(1) Individuals in charge of approving disbursements related to inventory purchases have read-only ability to view
the list of vendors in the pre-approved vendor master file.
(2) Purchasing agents who arrange for shipment of raw materials from vendors are responsible for verifying actual
receipt of the inventory items at the receiving dock.
(3) The receiving department has access to copies of the purchase orders that exclude information about quantities
ordered.
(4) Accounts payable personnel have access to receiving reports and purchases orders in addition to vendor invoices
for inventory purchases.
g. Which of the following procedures is the auditor least likely to perform on the actual date the physical inventory
count is observed?
(1) Examine inventory to make sure that it is tagged by client count teams.
(2) Watch for inventory items that are rust- or dust-covered or otherwise damaged.
(3) Observe client count teams to determine if they are conducting the physical inventory count in accordance with
client policies and procedures.
(4) Examine documentation supporting the acquisition of highly material inventory items on hand at the count date.

h. An inventory turnover analysis is useful to the auditor because it may detect

(1) inadequacies in inventory pricing.
(2) methods of avoiding cyclical holding costs.
(3) the existence of obsolete merchandise.
(4) the optimum automatic reorder points.

i. A CPA auditing inventory may appropriately apply attributes sampling to estimate the
(1) average price of inventory items.
(2) percentage of slow-moving inventory items.
(3) dollar value of inventory.
(4) physical quantity of inventory items.
Answer