Auditors Need to Understand the Client's Physical Inventory Count Controls

question 100

Multiple Choice

Auditors need to understand the client's physical inventory count controls before the count of the inventory begins so that

• A) the auditors can accurately count and tag the inventory for the client.
• B) the auditors can make constructive suggestions as to the adequacy of the procedures.
• C) the client will be informed on exactly what items the auditor intends to test count.
• D) the auditor can communicate any weaknesses directly to the audit committee.

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Definitions:

Fixed Overhead Volume Variance

The difference between the budgeted and actual volume of production, multiplied by the fixed overhead rate, indicating how fixed costs are allocated over different levels of output.

Fixed Overhead Budget Variance

This term refers to the difference between the budgeted fixed overhead costs and the actual fixed overhead costs incurred.

Standard Fixed Manufacturing Overhead Rate

The predetermined rate used to apply fixed manufacturing overhead to products, based on an estimate of total fixed manufacturing costs and an allocation basis.

Actual Fixed Overhead Costs

The real costs incurred for fixed overhead during a specified accounting period.