Which of the following is an auditor least likely to consider a departure from generally accepted

accounting principles? 
A. Valuing inventory at cost.
B. Including in inventory items that are consigned out to vendors, but not yet sold.
C. Using standard cost as the measure of inventory cost.
D. Including in inventory items shipped subsequent to year-end, but for which valid orders did
exist at year-end.

 
21. Which of the following is least likely to be accurate statement concerning characteristics of
an audit? 
A. An analysis of inventory turnover addresses whether the proper method of determining
inventory costs--as contrasted to market values--is being applied.
B. Characteristics of the double entry bookkeeping system make it possible to test for overstated
sales when tests of accounts receivable are being performed.
C. The direction of tests for overstatement errors is generally directed from the recorded entry to
source documents.
D. Use of a perpetual rather than a periodic inventory system is likely to affect the nature of
cutoff errors made at year-end.

22. Which of the following is not a reason for the special significance attached by the auditors to
the verification of inventories? 
A. The determination of inventory valuation directly affects net income.
B. The existence of inventories is inherently difficult to substantiate.
C. Special valuation problems often exist for inventories.
D. Inventories are often the largest current asset of an enterprise.

23. Which of the following is true about the auditors' observation of the client's physical
inventory? 
A. The count must be made at year-end.
B. The auditors should supervise the client's personnel.
C. The auditors' observation addresses the existence assertion.
D. The auditors should justify any omission of the observation in the audit report.

24. In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor
would be most interested in examining the: 
A. Purchases journal.
B. Purchase requisitions.
C. Purchase orders.
D. Vendors' invoices.

 
When looking at an asset, the team must first think about the replacement cost of the item
before assigning its value. Actually, the value should be considered more than just the cost to
create or purchase. These considerations are key:
. What did the asset cost to acquire or create?
. What is the liability if the asset is compromised?
. What is the production cost if the asset is made unavailable?
. What is the value of the asset to competitors and foreign governments?
. How critical is the asset, and how would its loss affect the company?
Placing a Value on Assets—Asset valuation is an onerous task that requires a lot of expertise and work to
do properly.
NOTE
Threat Identification
The risk-management team can gather input from a range of sources to help identify threats.
These individuals or sources should be consulted or considered to help identify current and
emerging threats:
. Business owners and senior managers
. Legal counsel
. HR representatives