Which of the Following Audit Procedures Probably Would Provide the Most

question 853

Multiple Choice

Which of the following audit procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?

• A) Trace test counts noted during the entity's physical count to the entity's summarization of quantities.
• B) Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens.
• C) Select the last few shipping advices used before the physical count and determine whether the shipments were recorded as sales.
• D) Inspect the open purchase order file for significant commitments that should be considered for disclosure.

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Definitions:

Raw Materials

Basic materials and substances used in the initial stages of production or manufacturing.

Month

A unit of time, typically comprising 28 to 31 days, used as a measure for organizing calendar time.

Underapplied Overhead

A situation in cost accounting where the allocated manufacturing overhead cost is less than the actual overhead incurred.

Manufacturing Overhead

All indirect costs associated with manufacturing, including maintenance, utilities, and indirect labor.