Question 1

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

Accepted Answer

A purchase order is a document that initiates the purchase process and contains information such as quantity, description, price, delivery date, and terms of payment. A document that identifies the quantity and description of products that have been received is called a receiving report or goods receipt.

Question 2

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

Accepted Answer

Supply chain management involves the effective coordination and management of all the activities involved in the production and delivery of goods or services. By streamlining processes and optimizing operations, many companies have been able to improve efficiency and ultimately achieve cost savings and higher customer satisfaction.

Question 3

An auditor can utilize a cross-sectional analysis for a client operating in multiple locations to identify areas of further inventory testing.

Accepted Answer

Cross-sectional analysis can help the auditor compare the inventory levels and valuation of different locations of the client, which can identify any discrepancies or areas of further testing.

Question 4

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 to make their financial statements appear more favorable. This is a form of financial statement fraud.

Question 5

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 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 to ensure that there is no conflict of interest or involvement in any unfair practices when it comes to selecting and engaging vendors. limiting access helps maintain transparency and accountability in the purchasing process.

Question 7

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, auditors can rely on the company's internal controls to detect and prevent errors and fraud. In this situation, the focus shifts from testing the effectiveness of internal controls to testing the completeness and accuracy of account balances. Analytical review of related expense accounts is a common auditing procedure used to confirm the reasonableness of expenses recorded in accounts payable.

Question 8

The acquisition and payment cycle typically begins with the cash disbursement for requested raw materials.

Accepted Answer

The acquisition and payment cycle typically begins with a purchase order for the needed materials, followed by the receipt and inspection of those materials, creation of an accounts payable account for the vendor, and finally the disbursement of cash to pay the vendor invoice.

Question 9

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 allows for the authorization of purchases to be separated from the custody and recording of those purchases, which reduces the risk of fraud and increases control over the purchasing process.

Question 10

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 may indicate that inventory is being overstated, potentially due to fraudulent activity such as fictitious inventory or counting items that do not actually exist.

Question 11

In order for the auditor to perform an engagement on a manufacturing firm,it is important that the entire integrated process is understood.

Accepted Answer

In order for the auditor to properly assess and evaluate the manufacturing firm's financial statements, it is important for them to have a thorough understanding of the entire integrated process. This includes not only the financial reporting system but also the company's operations, management, internal controls, and risk management processes. Failure to understand the integrated process could lead to incomplete or inaccurate audit findings.

Question 12

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 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

Open invoice files are reviewed subsequent to the year under audit in order to locate expenses that should be reclassified on the income statement.

Accepted Answer

The answer of Open invoice files are reviewed subsequent to...

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

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

Accepted Answer

The answer of For proper control,the receiving department should receive...

Question 17

The primary assertion to be tested on accounts payable is the existence assertion.

Accepted Answer

The primary assertion to be tested on accounts payable is the completeness assertion, ensuring all liabilities are recorded.

Question 18

Inventory is complex and typically considered a high-risk area in audits of service firms.

Accepted Answer

Inventory is generally not a significant concern for service firms, as they primarily provide services rather than goods, making inventory less complex and lower risk in audits.

Question 19

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

Accepted Answer

Reconciling vendor statements helps ensure that all outstanding payables are recorded in the company's records, providing assurance that the completeness assertion is accurate.

Question 20

The auditor would most likely use attribute sampling to test transactions in the acquisition cycle for timeliness of recording transactions.

Accepted Answer

Attribute sampling is used to test the presence or absence of certain characteristics in transactions, such as whether they were recorded in a timely manner.

Quiz 11: Audit of Acquisition and Payment Cycle and Inventory