ACC 406 Finals Prep Questions and Answers|2025
Revised Update | 100% Correct Complete Solutions
Key assertions in inventory cycle
-Existence (increase in assets leads to better liquidity ratio & lower COGS {higher GP})
-Valuation (can become obsolete; must be written down to LCNRV)
Other assertions for inventory cycle
-Rights & Obligations: Consignment/Bill & Hold cases (neither can be counted in inventory)
-Completeness: Not recording inventory they actually have
Tests for completeness for inventory cycle
-Sample receiving reports and agree to inventory record
-Sample items on the warehouse floor and trace to inventory records ("Floor-to-sheet")
Tests for existence for inventory cycle
-Sample items from inventory record and agree to receiving reports
-Sample items from inventory record and find them on the warehouse floor ("Sheet-to-floor")
Tests for valuation for inventory cycle
-Sample received invoices and review quantity and price
-Recalculate the costs used to price inventory and COGS
-Perform analytical procedure over days sales in inventory
Why is inventory observation always a part o the audit?
, ·Because it can help you learn more about the manufacturing process than you can from a piece
of paper
Requirements for conducting inventory observation
-Production must be shut down to do inventory count!
-Ensure client count teams follow instructions
-Ensure inventory tags are issued sequentially to individual departments (tags laying around can
falsely impact final inventory count)
-Perform sheet-to-floor & floor-to-sheet test counts
-Obtain cut-off information (last shipping and receiving documents issued)
-Obtain tag control information
-Observe condition of inventory - slow moving, excess, obsolete
-Inquire about goods held on consignment for others
What do transposition errors lead to in terms of inventory assertion?
Valuation error!
What audit procedures should the client have in place in order for inventory to be correctly
counted?
-Stopped production
-Tag control (not leaving them laying around)
-Give copies of tag to auditor
What document do you use to determine if LCM has been correctly applied?
Current vendor price list
Revised Update | 100% Correct Complete Solutions
Key assertions in inventory cycle
-Existence (increase in assets leads to better liquidity ratio & lower COGS {higher GP})
-Valuation (can become obsolete; must be written down to LCNRV)
Other assertions for inventory cycle
-Rights & Obligations: Consignment/Bill & Hold cases (neither can be counted in inventory)
-Completeness: Not recording inventory they actually have
Tests for completeness for inventory cycle
-Sample receiving reports and agree to inventory record
-Sample items on the warehouse floor and trace to inventory records ("Floor-to-sheet")
Tests for existence for inventory cycle
-Sample items from inventory record and agree to receiving reports
-Sample items from inventory record and find them on the warehouse floor ("Sheet-to-floor")
Tests for valuation for inventory cycle
-Sample received invoices and review quantity and price
-Recalculate the costs used to price inventory and COGS
-Perform analytical procedure over days sales in inventory
Why is inventory observation always a part o the audit?
, ·Because it can help you learn more about the manufacturing process than you can from a piece
of paper
Requirements for conducting inventory observation
-Production must be shut down to do inventory count!
-Ensure client count teams follow instructions
-Ensure inventory tags are issued sequentially to individual departments (tags laying around can
falsely impact final inventory count)
-Perform sheet-to-floor & floor-to-sheet test counts
-Obtain cut-off information (last shipping and receiving documents issued)
-Obtain tag control information
-Observe condition of inventory - slow moving, excess, obsolete
-Inquire about goods held on consignment for others
What do transposition errors lead to in terms of inventory assertion?
Valuation error!
What audit procedures should the client have in place in order for inventory to be correctly
counted?
-Stopped production
-Tag control (not leaving them laying around)
-Give copies of tag to auditor
What document do you use to determine if LCM has been correctly applied?
Current vendor price list
