Question 1

A purchase order identifies the quantity and description of products that have been received.

Accepted Answer

A purchase order is actually a document issued by a buyer to a seller indicating the items, quantities and agreed prices for products or services that the seller will provide to the buyer. It is not used to identify received products, but rather to request them.

Question 2

Analytical review of related expense accounts when auditing accounts payable would be used when control risk is assessed as low.

Accepted Answer

When control risk is assessed as low, the auditor can rely on the existing control procedures and use analytical review techniques to verify the related expense accounts. This approach is effective in detecting any errors or irregularities in the accounts payable, and it can help the auditor to ensure that the financial statements are fairly presented. Therefore, it is appropriate to use analytical review of related expense accounts when auditing accounts payable with low control risk.

Question 3

Inventory turnover is often calculated by the auditor for proper disclosure in client financial statements.

Accepted Answer

Inventory turnover is calculated by management to assess the efficiency of inventory management; the auditor reviews this calculation for accuracy and reasonableness, not for disclosure purposes in financial statements.

Question 4

Reconciliation of vendor statements to recorded payables provides assurance related to the completeness assertion.

Accepted Answer

Reconciliation of vendor statements to recorded payables ensures that all invoices and bills have been received, recorded, and paid, which provides evidence for the completeness assertion.

Question 5

In an audit where there is a heightened risk of fraud related to inventory,the auditor may want to observe all inventory locations simultaneously.

Accepted Answer

Observing all inventory locations simultaneously can help the auditor identify any inconsistencies or irregularities in the inventory count that may indicate fraud. This is a common practice in audits where there is a heightened risk of fraud related to inventory.

Question 6

An individual outside of the purchasing department should be the only individual with access to the vendor tables in the database.

Accepted Answer

This is a security measure to prevent unauthorized changes or additions to the vendor tables, which could result in fraudulent activity or inaccurate information. Only individuals with a legitimate business need for accessing and modifying vendor information should have access to these tables.

Question 7

Most organizations use a perpetual inventory system to manage inventory.

Accepted Answer

A perpetual inventory system is a method of inventory management where inventory levels are monitored and updated continuously based on real-time data from point-of-sale systems, barcode scanners, and other inventory tracking methods. This system provides a more accurate and up-to-date view of inventory levels compared to periodic inventory systems, which rely on physical counts at regular intervals. Most organizations prefer to use a perpetual inventory system to ensure that inventory levels are always accurate and optimize their inventory management processes.

Question 8

The major accounts in the acquisition and payment cycle are inventory,cost of goods sold,accounts payable,and other expense accounts.

Accepted Answer

The acquisition and payment cycle involves the purchase of inventory or goods and services, which are recorded in accounts such as inventory, accounts payable, and expense accounts. The cost of goods sold account is also involved in this cycle, as it represents the cost of the inventory sold during the period. Therefore, the statement is true.

Question 9

The acquisition and payment cycle includes processes for identifying products or services to be acquired,purchasing goods and services,receiving the goods,approving payments,and paying for goods and services received.

Accepted Answer

The statement correctly describes the processes involved in the acquisition and payment cycle.

Question 10

Management may intentionally misstate inventory balances by overvaluing items that are obsolete.

Accepted Answer

Management may intentionally misstate inventory balances by overvaluing items that are obsolete in order to inflate the company's reported profits and financial position. This is a form of financial statement fraud.

Question 11

Approval of items for payment usually involves a three-way match among the vendor invoice,the purchase order,and the receiving report.

Accepted Answer

Approval of items for payment typically involves comparing the vendor invoice to the purchase order and the receiving report to ensure that the goods or services were received and meet the agreed-upon terms before issuing payment. This is commonly known as a three-way match.

Question 12

A major control benefit of a centralized purchasing department is the segregation of the authorization function from the custody and recording functions.

Accepted Answer

Centralized purchasing departments separate the roles of authorizing purchases and handling the physical inventory, which helps prevent fraud and errors.

Question 13

The use of analytical review procedures applied to related expense accounts would not be used to determine if accounts payable were understated.

Accepted Answer

The answer of The use of analytical review procedures applied...

Question 14

The acquisition process begins with a purchase of goods or services.

Accepted Answer

The acquisition process actually begins before the purchase of goods or services, starting with the identification of a need or requirement within an organization.

Question 15

The auditor's primary concern with accounts payable is that of existence.

Accepted Answer

The auditor's primary concern with accounts payable is usually completeness, ensuring that all liabilities that should be recorded are indeed recorded, rather than existence, which focuses on verifying that recorded liabilities actually exist.

Question 16

Supply chain management has helped many companies improve the efficiency of operations.

Accepted Answer

Supply chain management involves optimizing the flow of goods, services, and information from suppliers to customers. By doing so, it can increase efficiency, reduce costs, and improve customer satisfaction, making it a valuable tool for companies.

Question 17

A networked software system linking a company's Web site to other vendors whose offerings and prices have been preapproved by appropriate management is call an automated purchasing system.

Accepted Answer

An automated purchasing system is a type of software system that automates the procurement process, typically by linking a company's website to preapproved vendors offering goods and services at preapproved prices. This can help streamline the purchasing process, reduce costs, and improve efficiency.

Question 18

The purchasing department should make sure that only authorized goods are received,the goods meet order specifications,an accurate count of the goods received is taken,and that accountability is established to assure that all receipts are recorded.

Accepted Answer

The answer of The purchasing department should make sure that...

Question 19

For proper control,the receiving department should receive a copy of the purchase order that has the quantities blanked out.

Accepted Answer

By blanking out the quantities on the purchase order, the receiving department is forced to physically count and verify the items received before entering the quantities into the system. This helps ensure appropriate control over inventory and protects against errors or fraud.

Question 20

An indication of potential inventory fraud is that inventory levels are growing faster than sales.

Accepted Answer

If inventory levels are growing faster than sales, it could indicate that inventory is being overstated and that there might be inventory fraud.

Quiz 11: Auditing Inventory, goods and Services, and Accounts Payable: the Acquisition and Payment Cycle