An Entity Maintains Perpetual Inventory Records in Both Quantities and Dollars

question 7

Multiple Choice

An entity maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably

• A) Increase the extent of tests of controls for the inventory cycle.
• B) Request that the entity schedule the physical inventory count at the end of the year.
• C) Insist that the entity perform physical counts of inventory items several times during the year.
• D) Apply gross profit tests to ascertain the reasonableness of the physical counts.

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Definitions:

Making Payments

The act of transferring money or its equivalent to another party as fulfillment of an obligation, such as repaying a loan or settling a bill.

Account Orders

Instructions to buy or sell securities or commodities that are given to a brokerage firm for execution.

Bank

A financial institution licensed to receive deposits, offer loans, and provide other financial services such as currency exchange and wealth management.

Check

A written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer or a designated person.