Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which one of the following accounts would an auditor most likely test by performing analytical procedures?

Accepted Answer

A) Sales commissions expense. 
B) Legal expenses. 
C) Repairs and maintenance expense. 
D) Travel expense. 
A) Sales commissions expense. 
B) Legal expenses. 
C) Repairs and maintenance expense. 
D) Travel expense.

Question 4

Inventory valuation tends to have complexity for manufacturing and merchandising companies because of cost flow assumptions.

Accepted Answer

A) True 
 B)False

Question 5

In computerized purchase operations the computer matches three documents,the purchase order,the receiving report,and the monthly statement,and if the three match within a prespecified tolerable limit,the invoice is approved for payment.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The tracing of a sample of receiving reports through the recording process tests the completeness assertion.

Accepted Answer

A) True 
 B)False

Question 9

For testing the completeness assertion for accounts payable,the auditor would

Accepted Answer

A) examine a sample of cash disbursements made after year end to determine whether the disbursements were for goods applicable to the previous year. 
B) reconcile vendor's statements with the accounts receivable trial balance. 
C) examine production equipment for useful lives. 
D) gather purchase orders immediately previous to and subsequent to year-end. 
A) examine a sample of cash disbursements made after year end to determine whether the disbursements were for goods applicable to the previous year. 
B) reconcile vendor's statements with the accounts receivable trial balance. 
C) examine production equipment for useful lives. 
D) gather purchase orders immediately previous to and subsequent to year-end.

Question 10

Bar code scanning may best be utilized in the receiving process to

Accepted Answer

A) identify goods arriving automatically in conjunction with a count. 
B) notify the shipper that product has arrived. 
C) order new items on behalf of the purchasing department. 
D) record inventory that has been written off the books. 
A) identify goods arriving automatically in conjunction with a count. 
B) notify the shipper that product has arrived. 
C) order new items on behalf of the purchasing department. 
D) record inventory that has been written off the books.

Question 11

The acquisition and payment process consists of each of the following phases except

Accepted Answer

A) receipts of goods and services. 
B) approval of items for payment. 
C) application of cash receipts. 
D) authorized request for goods and services. 
A) receipts of goods and services. 
B) approval of items for payment. 
C) application of cash receipts. 
D) authorized request for goods and services.

Question 12

The inventory observation is performed for the purpose of determining the accuracy of client counting procedures.

Accepted Answer

A) True 
 B)False

Question 13

The inventory of MegaMart Company is distributed between 85 stores throughout the United States,Puerto Rico and Mexico.MegaMart has a calendar year-end,uses a periodic inventory system and performs a physical count on January 1st of each year.In the planning of the audit of MegaMart,the engagement team must consider

Accepted Answer

A) if the finance departments in Mexico and Puerto Rico are available to perform the audit testing on January 1st. 
B) which of the stores to randomly visit and how many items to test. 
C) the risk of the company transporting items from Maine to Mexico between audit counts. 
D) coordinating with the client which stores will be visited for inventory observation. 
A) if the finance departments in Mexico and Puerto Rico are available to perform the audit testing on January 1st. 
B) which of the stores to randomly visit and how many items to test. 
C) the risk of the company transporting items from Maine to Mexico between audit counts. 
D) coordinating with the client which stores will be visited for inventory observation.

Question 14

Generally accepted auditing standards require the auditor to observe the taking of the physical inventory at year-end.

Accepted Answer

A) True 
 B)False

Question 15

The auditor is responsible to take a physical inventory at the client location on behalf of the audit client.

Accepted Answer

A) True 
 B)False

Question 16

When testing the valuation assertion,the auditor would most likely

Accepted Answer

A) confirm inventory on consignment. 
B) examine receiving reports for inventory,tracing them recorded amounts. 
C) observe the taking of physical inventory. 
D) perform price tests to the related cost flow assumption. 
A) confirm inventory on consignment. 
B) examine receiving reports for inventory,tracing them recorded amounts. 
C) observe the taking of physical inventory. 
D) perform price tests to the related cost flow assumption.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Testing cash disbursements subsequent to the year under audit allows the auditor to determine certain payables that may not have been recorded previously.

Accepted Answer

A) True 
 B)False

Question 19

All of the following are required by the auditor before allowing the client to take inventory before year-end except which one?

Accepted Answer

A) absence of "red flags". 
B) internal control is weak. 
C) the auditor can effectively test the year-end balance through a combination of analytical procedures and selective testing of transactions between the physical count and the year-end. 
D) the auditor reviews the intervening transactions for evidence of any manipulation or unusual activity. 
A) absence of "red flags". 
B) internal control is weak. 
C) the auditor can effectively test the year-end balance through a combination of analytical procedures and selective testing of transactions between the physical count and the year-end. 
D) the auditor reviews the intervening transactions for evidence of any manipulation or unusual activity.

Question 20

Preparing for an inventory observation
In the audit of inventory the auditor must perform important procedures prior to the actual observation.Identify the steps the auditor must take prior to the day the inventory is actually counted.

Accepted Answer

Prior to inventory-taking day the audito

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

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

Which one of the following accounts would an auditor most likely test by performing analytical procedures?

Inventory valuation tends to have complexity for manufacturing and merchandising companies because of cost flow assumptions.

In computerized purchase operations the computer matches three documents,the purchase order,the receiving report,and the monthly statement,and if the three match within a prespecified tolerable limit,the invoice is approved for payment.

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

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

The tracing of a sample of receiving reports through the recording process tests the completeness assertion.

For testing the completeness assertion for accounts payable,the auditor would

Bar code scanning may best be utilized in the receiving process to

The acquisition and payment process consists of each of the following phases except

The inventory observation is performed for the purpose of determining the accuracy of client counting procedures.

Generally accepted auditing standards require the auditor to observe the taking of the physical inventory at year-end.

The auditor is responsible to take a physical inventory at the client location on behalf of the audit client.

When testing the valuation assertion,the auditor would most likely

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

Testing cash disbursements subsequent to the year under audit allows the auditor to determine certain payables that may not have been recorded previously.

All of the following are required by the auditor before allowing the client to take inventory before year-end except which one?

Preparing for an inventory observation In the audit of inventory the auditor must perform important procedures prior to the actual observation.Identify the steps the auditor must take prior to the day the inventory is actually counted.

Auditing: Integral to the Economy

Corporate Governance and Audits

Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards

Audit Risk,business Risk,and Audit Planning

Internal Control Over Financial Reporting

Performing an Integrated Audit

A Framework for Audit Evidence

Tools Used in Gathering Audit Evidence

Auditing for Fraud

Auditing Revenue and Related Accounts

Audit of Cash and Other Liquid Assets

Audit of Long-Lived Assets and Related Expense Accounts

Audit of Longer-Term Liabilities, equity, acquisitions, and Related-Entity Transactions, long-Term Liabilities, and Equity

Ensuring Audit Quality in Completing the Audit

Auditors Reports

Professional Liability

Advanced Topics Concerning Complex Audit Judgments

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Exam 11: Audit of Acquisition and Payment Cycle and Inventory

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

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

Which one of the following accounts would an auditor most likely test by performing analytical procedures?

Inventory valuation tends to have complexity for manufacturing and merchandising companies because of cost flow assumptions.

In computerized purchase operations the computer matches three documents,the purchase order,the receiving report,and the monthly statement,and if the three match within a prespecified tolerable limit,the invoice is approved for payment.

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

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

The tracing of a sample of receiving reports through the recording process tests the completeness assertion.

For testing the completeness assertion for accounts payable,the auditor would

Bar code scanning may best be utilized in the receiving process to

The acquisition and payment process consists of each of the following phases except

The inventory observation is performed for the purpose of determining the accuracy of client counting procedures.

Generally accepted auditing standards require the auditor to observe the taking of the physical inventory at year-end.

The auditor is responsible to take a physical inventory at the client location on behalf of the audit client.

When testing the valuation assertion,the auditor would most likely

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

Testing cash disbursements subsequent to the year under audit allows the auditor to determine certain payables that may not have been recorded previously.

All of the following are required by the auditor before allowing the client to take inventory before year-end except which one?

Preparing for an inventory observation In the audit of inventory the auditor must perform important procedures prior to the actual observation.Identify the steps the auditor must take prior to the day the inventory is actually counted.

Auditing: Integral to the Economy

Corporate Governance and Audits

Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards

Audit Risk,business Risk,and Audit Planning

Internal Control Over Financial Reporting

Performing an Integrated Audit

A Framework for Audit Evidence

Tools Used in Gathering Audit Evidence

Auditing for Fraud

Auditing Revenue and Related Accounts

Audit of Cash and Other Liquid Assets

Audit of Long-Lived Assets and Related Expense Accounts

Audit of Longer-Term Liabilities, equity, acquisitions, and Related-Entity Transactions, long-Term Liabilities, and Equity

Ensuring Audit Quality in Completing the Audit

Auditors Reports

Professional Liability

Advanced Topics Concerning Complex Audit Judgments

Filters