ACC 406 FINAL EXAM QUESTIONS
WITH VERIFIED ANSWERS. A+ GRADE
2025/2026.
Key assertions in inventory cycle - ANS -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 - ANS -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 - ANS -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 - ANS -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 - ANS -Sample received invoices and review quantity
and price
-Recalculate the costs used to price inventory and COGS
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, -Perform analytical procedure over days sales in inventory
Why is inventory observation always a part o the audit? - ANS ·Because it can help you learn
more about the manufacturing process than you can from a piece of paper
Requirements for conducting inventory observation - ANS -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? - ANS Valuation error!
What audit procedures should the client have in place in order for inventory to be correctly
counted? - ANS -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? - ANS Current
vendor price list
Which additional cycles does the inventory cycle interact with? - ANS Sales & Purchases
What is a contingent liability? - ANS 1) an existing condition, situation, or set of
circumstances
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
WITH VERIFIED ANSWERS. A+ GRADE
2025/2026.
Key assertions in inventory cycle - ANS -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 - ANS -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 - ANS -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 - ANS -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 - ANS -Sample received invoices and review quantity
and price
-Recalculate the costs used to price inventory and COGS
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, -Perform analytical procedure over days sales in inventory
Why is inventory observation always a part o the audit? - ANS ·Because it can help you learn
more about the manufacturing process than you can from a piece of paper
Requirements for conducting inventory observation - ANS -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? - ANS Valuation error!
What audit procedures should the client have in place in order for inventory to be correctly
counted? - ANS -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? - ANS Current
vendor price list
Which additional cycles does the inventory cycle interact with? - ANS Sales & Purchases
What is a contingent liability? - ANS 1) an existing condition, situation, or set of
circumstances
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
