An audit objective relating to inventory is to determine that: Multiple Choice Inventory occurred and cost of goods sold exist. All recorded inventory at year-end is physically present. The client has rights to recorded inventory. Inventory is valued at net sales prices.
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Some of G and A Electronics' merchandise is gathering dust. It is now December 31, 2016, and the current replacement cost of the ending merchandise inventory is $25,000 below the business's cost of the goods, which was $100,000. Before any adjustments at the end of the period, the company's Cost of Goods Sold account has a balance of $400,000. Requirements: 1. Journalize any required entries. 2. At what amount should the company report merchandise inventory on the balance sheet? 3. At what amount should the company report cost of goods sold on the income statement? 4. Which accounting principle or concept is most relevant to this situation?
Akash M.
Auditors gather several different types of evidence during the audit, including physical evidence, third-party representation, documentary evidence, computations, and client representation. Listed below are FIVE (5) audit procedures that are typically performed in an audit: i. Observe the client's inventory-taking procedures. ii. Computer printout from the client's accounts receivable subsidiary ledger. iii. Obtain a report on the valuation of inventory by a specialist. iv. Examine an invoice in support of a sales transaction. v. Inspect the client's bank statements. Required: a) Verify whether each of the above (i) to (v) documentary evidence is used, is received directly by auditors, created externally and held by the client, or created internally by the client. b) Exhibit the difference between the relative reliability of the above THREE (3) forms of documentary evidence.
Madhur L.
Part of the audit of Waren Sports Supply has you test inventory balances. A key test of the accuracy and valuation/allocation assertion for inventory is inventory price testing. This test involves drawing a sample of inventory items included in the inventory listing at year-end and comparing the price per unit as recorded by management to the price as supported by external evidence. In this problem, you will use nonstatistical sampling to 1) calculate the sample size of inventory items to test, 2) allocate your sample across the inventory population, 3) consider how to treat identified errors in calculating the population error, and 4) conclude on the inventory account's balance. Waren has 250 unique products in its inventory with a total book value of $3,500,000. It has divided those inventory products into the following three strata: Number of products and value cutoff Book value of stratum 15 products each with a total BV of greater than $75,000 $1,500,000 35 products each with a total BV of greater than $10,000 but less than $75,000 $500,000 200 products each with a total BV of less than $10,000 $1,500,000 Your audit senior made the following decisions when planning the inventory cost testing: Risk of material misstatement is low and the desired confidence level is moderate, resulting in a confidence factor of 1.2. Tolerable misstatement for inventory is $50,000, and expected misstatement is $10,000. You will test all inventory items with individual book values in excess of $75,000. What is the sample size, and how is it allocated across the population? 35. After testing the inventory items, you identify the following differences: Stratum BV of Stratum Book Value of Sample Audit Value of Sample Difference >$75,000 $1,500,000 $1,500,000 $1,495,000 $5,000 >10,000 $500,000 $250,000 $249,000 $1,000 <10,000 $1,500,000 $400,000 $399,500 $500 Based on the testing information above, calculate your best estimate of the error in the population of inventory, conclude as to whether the inventory account balance is fairly stated. Justify your answer.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
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