审计学教学要点(13)(20200617222457)

CHAPTER 09Production CycleLEARNING OBJECTIVESReview Checkpoints Multiple ChoiceExercises, Problems,and Simulations1. Describe the production cycle, includingtypical source documents and controls.1, 2, 3, 4, 5 20, 21, 22, 38 452. Give examples of tests of controls overconversion of materials and labor in aproduction process. 6, 7, 8, 9 23, 24, 26, 30, 37,39, 4146, 473. Identify and describe considerationsinvolved in the observation of physicalinventory and tests of inventory pricingand compilation. 10, 11, 12, 13,14, 15, 16, 1725, 27, 28, 29, 31,32, 33, 34, 35, 36,40, 42, 43, 4448, 49, 50, 51, 52,53, 54, 55, 56, 60,61, 624. Describe some common errors andfrauds in the accounting for productioncosts, and related cost of goods sold anddesign some audit and investigationprocedures for detecting these errorsand frauds.18 ,19 56 , 58,59, 60SOLUTIONS FOR REVIEW CHECKPOINTS9.1 Production planningProductionCost accounting9.2 GAAP recognizes specific identification, weighted average, FIFO, and LIFO methods of accounting forinventory.9.3 The auditor performs a walkthrough by talking to employees about their duties, observing performance, andexamining documents produced and agreeing them to related documents.A walkthrough of a production transaction will collect the following documents:Production order.Bill of materials.Materials requisitions.Inventory record (raw materials issue).Journal entry (moving raw materials to work in process).Labor report (time records).Journal entry (charging labor to work in process).Production cost analysis.Inventory record (finished goods addition).Journal entry (moving work in process to inventory).Documents should be agreed to production orders based on the bill of materials. The requisitions shouldalso agree to the inventory record, which is agreed to the journal entry.The labor report would be agreed to time records and the journal entry. The journal entries would besummarized and agreed to the production cost.The finished goods addition would be agreed to the production cost and the journal entry.Controls: The auditor would look for the following:Approval signatures on requisitions, and time records.Approvals of journal entries.Tests of accuracy of calculations.Separation ofa.Custody of the inventory.b.Record keeping.c.Authorization of use of materials and incurring time.d.Reconciliation of inventory records to physical counts.9.4 Some work to obtain assurance about th e reasonableness of the client’s sales forecast needs to beperformed. All the auditors need to accomplish is to learn about the assumptions built into the forecast forthe purpose of ascertaining their reasonableness. In addition, some work on the mechanical accuracy of theforecast should be performed to avoid embarrassing reliance on faulty calculations.9.5 If high levels of production were planned and carried out in anticipation of high sales that did not occur, theinventory should show an increase. The potential problem is overvaluation (overstatement) of slow-movingor obsolete inventory and understatement of cost of goods sold. Another potential problem is that overheadwould be allocated on inaccurate volume expectations.9.6 Failure to record materials used should be prevented by matching documents. For example, dated rawmaterials inventory issues not matched to materials in the production cost analysis indicate a possibleomission of material used in production. Use of prenumbered documents and reports to account for anumerical sequence is also a primary means of preventing omission of transactions.9.7 Auditors are looking for the separation of duties in authorization of transactions, custody of assets,recording of transactions, and periodic reconciliation. In the production cycle, these duties are separated as follows:a)Initial authorization is a production order prepared in production planning and control; authorizationsof labor hours and material to be used are given by the supervisor when job time tickets are given toemployees and material requisitions are sent to raw materials stores.b)Cost accounting clerks analyze independent recording of labor and materials in production cost fromrecords after comparing two sources.c)Raw materials stores maintain physical custody of raw materials, none of which are released withoutauthorization (requisition) and record of withdrawal. The supervisor maintains custody ofwork-in-process inventory.9.8 The production order record provides a control over the quantity of product manufactured by theproduction department. Used in combination with the bill of materials, this record provides an approvedlist of materials that should be used. This list can be compared to the actual materials used as recorded by the cost accounting department.9.9 This is a question about the direction of tests of controls.a.To determine whether all authorized production was completed and placed in inventory or written offas scrap, the auditors should select a sample of approved production orders from the productionplanning department files and then trace them forward through cost accounting to inventory orwrite-offs.b.To determine whether finished goods inventory was actually produced and costs were properlyaccumulated, the auditors should select a sample of production put in the Inventory account and thenvouch these production reports to approved production orders and cost calculations of material, labor,and overhead.9.10 The auditor considers these characte ristics in a review of the client’s inventory-taking instructions:s of client personnel responsible for the count.b.Dates and times of inventory taking.s of client personnel who will participate in the inventory taking.d.Instructions for recording accurate descriptions of inventory items, for count and double-count,and for measuring or translating physical quantities (such as counting by measures of gallons,barrels, feet, dozens).e.Instructions for making notes of obsolete or worn items.f.Instructions for the use of tags, punched cards, count sheets, computers, or other media devicesand for their collection and control (a typical inventory count sheet is illustrated at Exhibit 9.7).g.Plans for shutting down plant operations or for taking inventory after store closing hours and plansfor having goods in proper places (such as on store shelves instead of on the floor or of rawmaterials in a warehouse rather than in transit to a job).h.Plans for counting or controlling movement of goods in receiving and shipping areas if thoseoperations are not shut down during the count.i.Instructions for computer compilation of the count media (such as tags, count sheets) into finalinventory listings or summaries.j.Instructions for review and approval of the inventory count; notations of obsolescence or othermatters by supervisory personnel.k.Instructions for making changes and corrections to count tickets.9.11 Dual-direction sampling in the context of inventory test counts proceeds as follows:a.In one direction, a sample of inventory items can be chosen from the perpetual records orinventory count tags for test count to ascertain that recorded inventory was counted (existence).b.In the other direction, the auditor can count a sample of items in their locations, record them, andlater trace them to the perpetual records and inventory summary count sheets to ascertain whetherall inventory in place was recorded and counted (completeness).9.12 Amounts on inventory count sheets and tickets become the amounts in the inventory, so a fictitious item onthe count sheet or ticket becomes a fictitious item in inventory. If the auditors do not obtain controlinformation, the client can easily add amounts to the inventory count without the auditors’ kno9.13 The auditor should document:Whether the client’s personnel were following the inventory instructions.Test counts taken, including description, and quantity.The ticket or count sheet numbers that were used as well as the numbers of voided and unusedtickets.The last receiving reports and shipping documents used and the number of the next unused item.The condition of the inventory.Any inventory on hand that is not owned by the client.Any unusual items noticed during the count.9.14 The auditor must obtain shipping and receiving cutoff information during the physical inventoryobservation to ensure that items recorded as receipts or shipments in the accounting records matchpurchases included and sales excluded from inventory in the perpetual records. The perpetual records arecompared to the count to determine the book to physical inventory adjustment.9.15 In this type of situation, the auditor will arrange to be present during one more of the test counts, andimportantly, he or she will evaluate the cycle or statistical plan for validity. During his or her observation ofthe inventory taking, the auditor will employ the usual inventory audit procedures, perform test counts andbe responsible for a conclusion concerning the reasonable accuracy of perpetual quantity records.9.16 The client’s managers may be making record of the auditors’ test counts so they can fraudulently changethe counts on items the auditors did not count.9.17 Obsolete or slow-moving inventory is often indicated by:Inventory turnover ratios.Trend analysis of inventory levels.Days sales in inventory ratio.Sales trend analysis.Note: All of these procedures are more powerful as you disaggregate the data.9.18 If a client is counting inventory at multiple locations, the auditor must visit a sample of the locations on asurprise basis to observe the counts. The number of locations depends on the materiality of the inventoryshe or he will be visiting and the quality of the client’s controls. The auditor should notify the client thatsome locations so personnel will know to be cooperative but should not tell the client which locations willbe visited.9.19 An inventory roll-forward is the client’s process for updating the inventory balance for shipments andreceipts from the time of the physical count to the end of the fiscal year. Auditors will normally beconcerned with reviewing the controls over the roll-forward and testing the entries to supporting documents.The auditor can also use analytical procedures to determine the reasonableness of the ending inventory. SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS9.20 a. Incorrect This is allowed by GAAP.b. Incorrect This is allowed by GAAP.c. Incorrect This is allowed by GAAP.d. Correct Although standard costs are commonly used, they must not be materiallydifferent than one of the allowed methods.9.21 a. Incorrect Raw materials and supplies purchased are linked through the acquisition andexpenditure cycle.b. Incorrect Labor and costs are linked through the payroll cycle.c. Incorrect Cost of goods sold and reduction to finished goods inventory is linked throughthe revenue and collection cycle.d. Correct The finance and investment cycle is not directly linked to the production cycle,although it is indirectly linked through investments in property, plant, andequipment.9.22 a. Incorrect This is what the company plans to sell, not produce. Some of the planned salesmay come from existing inventory, and some of the production may be sold infuture periods.b. Incorrect These reports indicate what was actually produced.c. Correct The production plan shows what is planned to be actually produced.d. Incorrect The purchases journal shows what was actually purchased during the period.9.23 a. Incorrect The job cost sheet indicates the costs used in production and would provideweak evidence as to the occurrence of any transactions or eventsb. Incorrect The job cost sheet indicates the costs used in production and would provide noevidence that production or any related accounts were complete.c. Correct The job cost sheets indicate the cost used in determining the accuracy ofinventory produced.d. Incorrect The job cost sheet indicates the costs used in production and would provide noevidence regarding the proper classification of transactions9.24 a. Incorrect This is a common practice that enhances efficiency.b. Incorrect See answer (a).c. Correct This weakness is an improper combination of inventory custody and record-keeping responsibilities.d. Incorrect See answer (a).9.25 a. Incorrect The most meaningful analytical procedures are performed at the mostdisaggregated level, in this case, the product level.b. Incorrect The most meaningful analytical procedures are performed at the mostdisaggregated level, in this case, the product level.c. Correct This is the most disaggregated level of the choices given.d. Incorrect The most meaningful analytical procedures are performed at the mostdisaggregated level, in this case, the product level.9.26 a. Incorrect This might detect the theft but wouldn’t prevent it.b. Incorrect This wouldn’t necessarily detect the theft.c. Correct The separate space facilitates security, and the frequent counts enable companypersonnel to detect shortages in a timely manner.d. Incorrect This would account for legitimately moved inventory, but those people stealinginventory would not file proper forms.9.27 a. Incorrect This step would not provide evidence of whether the items are owned.b. Incorrect This step would not detect obsolescence.c. Incorrect Ensuring physical presence would require tracing from the listing to inventorytickets.d. Correct If the sample is from the inventory in the physical location, the tracing has theobjective of auditing the completeness of the final inventory schedule.9.28 a. Incorrect This would make the count lower than the perpetual records.b. Correct Unrecorded credit memos means that the returned inventory is not in theperpetual records; thus, the recorded amount will be smaller than the amount onhand.c. Incorrect This would make the perpetual records higher than the physical countd. Incorrect This would make both the physical count and perpetual records too low.9.29 a. Incorrect Controls must be strong for the roll-forward to be reliable.b. Correct Auditors rely on accurate perpetual records to maintain an accurate inventorybalance during the intervening period between the physical count and thebalance sheet date.c. Incorrect Slow-moving inventory is easier to roll-forward.d. Incorrect This has nothing to do with when the count should be taken.9.30 a. Incorrect This step helps ensure existence as well as completeness; however answer (c) isbetter.b. Incorrect This ensures that goods will not be stolen (existence assertion).c. Correct Checking the numbering sequence on prenumbered receiving reports is a way todetect omission of the recording of inventory received.d. Incorrect These are not incompatible duties that must be separated.9.31 a. Correct An auditor does not expect all inventories to which the auditee has title to be onhand at the date of the count. Some purchased goods may still be in transit atthat time. Also, some inventory may be on consignment or in public warehousesalthough properly included in the count.b. Incorrect An auditor does review inventory pricing to ensure cost data are accurate.c. Incorrect An audit of inventory would include procedures to ensure that inventory isproperly presented and all required information is disclosed.d. Incorrect A review of the physical inventory includes the observation of inventory forobsolete and slow moving items9.32 a. Incorrect This may be done, but the persuasiveness is low because of the weak controls.b. Incorrect No! Controls are tested when they are strong and can be relied on.c. Correct If control risk is high, a timelier audit procedure may be necessary, andextending the results of work done on an interim basis to year-end might beinappropriate. Thus, observation of inventory at year-end would provide the bestevidence as to existence.d. Incorrect This can be done only if controls can be relied on.9.33 a. Incorrect This procedure does not provide evidence about rights and obligations.b. Correct Tracing the details of test counts to the final inventory schedule assures theauditor that items in the observed physical inventory are included in theinventory records. The auditor should compare the inventory tag sequencenumbers in the final inventory schedule to those in the records of his or her testcounts made during the client’s physical inventory.c. Incorrect The auditor would go in the opposite direction to test existence and occurrence.d. Incorrect This pertains to the presentation and disclosure assertion.9.34 a. Incorrect Physical presence does not necessarily imply ownership. The goods may bepledged or on consignment.b. Correct The major audit objective of testing the assertion of rights and obligations forinventories is to determine that the entity has legal title or similar rights ofownership to the inventories. Typically, the auditor will examine paid vendorsinvoices, consignment agreements, and contracts.c. Incorrect This is a test for cutoff.d. Incorrect The wording of the question implies that this is a test for presentation anddisclosure. The procedure does, however, reveal obligations for purchasecommitments. Answer (b) is better because of the way the question is worded.9.35 a. Incorrect Turnover has little to do with the existence assertion.b. Incorrect Turnover has nothing to do with rights and obligations.c. Incorrect See answer (b).d. Correct Assertions about valuation or allocation concern whether asset, liability, revenue,and expense components have been included in the financial statements atappropriate amounts. An examination of inventory turnover pertains to the auditobjective of identifying slow-moving, excess, defective, and obsolete itemsincluded in inventories. This audit objective relates to the valuation or allocationassertion.9.36 a. Incorrect See answer (d).b. Incorrect See answer (d).c. Incorrect See answer (d).d. Correct The first inclination is to choose answer (a) because the auditor is vouching, andvouching usually implies a test for existence. However, in this case, a vendorinvoice would provide evidence about only the amount that is being billed(valuation) but would not provide information regarding the fact that the goodswere received and appropriately included in the inventory status report.Vouching for existence and tracing for completeness are good guidelines, butshould not replace the students thought process on what evidence is beinggathered9.37 a. Incorrect Inspecting documents for approvals is a typical test of controls.b. Incorrect See answer (d).c. Incorrect See answer (d).d. Correct Policy and procedure manuals are least important because the most importantfeatures are the actual workings of the controls as indicated by the other threechoices.9.38 a. Incorrect This is the focus of substantive tests.b. Incorrect See answer (a).c. Incorrect Financial statements but not accounting systems per se should be produced inaccordance with GAAP.d. Correct Auditors need to determine whether the cost accounting system assigns costsproperly to the inventories.9.39 a. Incorrect Cost ledgers are focused more on cost than on quantities.b. Incorrect The perpetual inventory records are not original documents.c. Incorrect Receiving reports usually reflect materials going into raw materials, not work-in-process.d. Correct Material requisitions are the authorization for the inventory custodian to releaseraw materials and supplies to production personnel.9.40 a. Incorrect This tests whether the reductions in inventory for shipments were accurate.b. Incorrect This tests whether the additions to raw materials inventory for purchases wereaccurate.c. Incorrect This provides an overall test of the accuracy of the perpetual records.d. Correct If the controls are excellent and the roll-forward is tested, a recount is notnecessary.9.41 a. Incorrect If controls are weak and control risk is high, the auditor of a nonpublic companywould not test the controls.b. Incorrect Tests of controls do not test inherent risk.c. Correct The auditor tests the controls to reduce substantive tests.d. Incorrect This is not a requirement of GAAS for nonpublic companies.9.42 a. Incorrect Determining that the entity has the rights to the inventory does not provideevidence that all inventory items have been recorded in the ending balance.b. Incorrect Determining that the inventory is properly valued does not provide evidence thatall inventory items have been recorded in the ending balance.c. Incorrect Determining that the inventory is properly presented does not provide evidencethat all inventory items have been recorded in the ending balance.d. Correct Completeness by definition is the assertion that all items are reflected in thebalance.9.43 a. Incorrect The inventory may be observed, but to do this the auditor must go to the publicwarehouse. Depending on the distance this is usually not viewed as an efficientmeans of gathering evidence.b. Correct Sending a confirmation to the public warehouse asking for verification ofinventory held is an efficient method for gathering evidence of the existence ofthis inventory.c. Incorrect A calculation of the inventory value does not provide evidence of its existence.d. Incorrect Inspection is an evidence term usually reserved for the examination ofdocuments and would not provide better evidence of existence than aconfirmation.9.44 a. Correct Tracing tags to the inventory listing provides evidence that the items countedand recorded on the tags were recorded in the inventory list. This is thecompleteness assertion (i.e. the inventory list is complete).b. Incorrect To collect evidence of that items on the inventory sheet were counted the auditorwould determine if the items of the listing were counted by vouching to theinventory tags. This is the opposite of answer A and provides evidence ofexistence (items on the list exist), not completeness.c. Incorrect Tracing tags to the inventory listing would not provide any information aboutthe valuation (e.g. lower of cost or market).d. Incorrect Tracing tags to the inventory listing would not provide any information aboutthe valuation (e.g. items were properly valued).SOLUTIONS FOR EXERCISES, PROBLEMS, AND SIMULATIONS9.45Internal Control Questionnaire Items: Possible Error or Fraud Due to WeaknessQuestion Possible Error or Irregularity1 Fraud or error in production, payroll, or reporting concealed in cost records.2 Unauthorized production for personal products.3 Materials withdrawn from inventory or hours worked for unauthorized projects.4 Materials withdrawn for personal use.5 Production may be started for uneconomic jobs or personal projects.6 Materials and labor may be used for uneconomic jobs or personal projects.7 Errors in material usage or theft by storeroom employees.8 Errors in labor costs.9 Foreperson incorrectly requests material or assigns job skills.10 Not all material or labor accounted for correctly. The foreperson could also concealunauthorized material or labor in an authorized job.11 Production orders lost and accounting incomplete.12 Lost forms resulting in labor or material used but not recorded.13 Labor or material used but not recorded.14 Issue slips not compared to material used reports. Material withdrawn from inventorynot accounted for. Lost forms resulting in inventory not charged to Cost of GoodsSold.15 Failure to disclose agreements in footnotes.16 Inclusion of goods on consignment in inventory accounts.17 Scrap reporting incorrect. Incorrect perpetual inventories.18 Differences not investigated. Labor used not accounted for by assigning to a job.19 Incorrect costs used; inventory improperly valued.20 Comparison not made or difference not investigated. Production completed not put intoinventory.21 Inventory transactions posted in wrong period. Cutoff errors.22 Errors in summary entries not detected and corrected.23 Accounting entries may get put in the wrong account.9.46Tests of Controls Related to Controls and AssertionsProcedure (a) Strength (b) Assertion(1) Preparation of summary material andlabor entries. Valid work-in-process inventory transactions are recorded and none omitted (completeness).(2) Production cost sheets prenumbered andaccounted for. Valid finished goods inventory transactions are recorded and none omitted (completeness).(3) Independent check on materials and laborused. Recorded labor and material transactions are valid (occurrence).(4) Issue forms secure and used by authorizedpersonnel. Prenumbered and accountedfor. All material issues are authorized (occurrence). All issue forms are recorded (completeness).(5) Use of control account. Production transactions are recorded properly(classification).(6a) Recording of materials used. Material used is recorded in proper period(accuracy).(6b) Standard control number. Job accounting is complete (completeness).(6c) Material received custody. Material used is authorized (occurrence).(6d) Proper material received. Job cost accounting accurate (accuracy).(6e) Proper release of correct materials. Material release recorded accurately (accuracy).(6f) Material release authorized and timely. Authorized issue of material and in proper period(occurrence, accuracy).(7) Timely recording. Inventory recorded in proper period(completeness, cutoff).9.47Cost Accounting Test of ControlsProcedure EvidenceSample of Cost Accounting Payroll AnalysesReconcile periodic totals with payroll register record ofpayments.Incomplete costing deviation.Vouch costs to time records. Invalid time analyzed deviation.Trace cost accounting labor distributions to management reports and postings in general ledger and subsidiary account(s). Inaccurate reporting deviation. Incomplete accounting deviation. Wrong classification deviation.Sample of Recorded Labor Cost ItemsVouch labor cost entries and management reports tosupporting labor cost analyses.Invalid entries deviation.9.48Inventory Count Observation: Planning and Substantive Proceduresa. Sammy should find in the audit working papers a planning memo describing the client’sinventory-tak ing plan and notes about the auditors’ firsthand observation of the instructions beinggiven to counters, along with a memo about the auditors’ observation of the counting. This memoshould tell about supervision of the audit staff, and the working papers (test counts) should showthe review signatures of the supervising auditors.b. Working papers should document performance of these substantive procedures for the existenceand completeness assertions:cal inventory count.(1) Conduct an observation of the company’s physi(2) Scan the inventory compilation for items added from sources other than the physicalinventory count.(3) At year-end, obtain the number of the last shipping and receiving documents. Use theseto scan the sales, inventory/cost of sales, and accounts payable entries for proper cutoff.(4) Confirm or inspect inventories held in public warehouses.(5) Select sample of used tags and trace them to the items on the floor.9.46Sales/Inventory CutoffIn view of the information given, the following adjusting entries would be necessary:For the first item:Inventory Control 28,400Inventory Variation (CGS) 28,400For the third item:Sales 21,300Accounts Receivable 21,300Inventory Control 18,900Cost of Sales 18,900Because the goods in the first item were shipped prior to the taking of the physical inventory, the InventoryControl account was reduced by the cost of these goods in the adjustment that arose from the physicalinventory. Because the client credited Inventory Control for the cost of these goods on December 16, one ofthese two credits must be removed. The above entry reverses the one made on December 15 with respect tothese goods and leaves Cost of Sales properly charged with the $28,400 as a result of the December 16entry. The sales entry was made properly and requires no adjustment.In the second item, the client has reduced the control account at the shipment date prior to taking thephysical inventory. The control was in agreement with the physical count on December 15 so far as thesegoods were concerned, and the December 15 adjustment did not relate to these goods. Because the accountsinvolved are in agreement with the facts at both December 15 and December 31, no adjustment is necessary.The third item is a sale recorded too early, and both the revenue and cost recognition need to be revised.9.50Purchasing Cutoff。