Question 1

The auditor may discover that the recorded cost of inventory exceeds the designated market price when testing which assertion?

Accepted Answer

A)  Existence. 
B)  Cutoff. 
C)  Valuation. 
D)  Rights.

Question 2

The cash account is not part of the acquisitions and payment cycle.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Which assertion has the greatest emphasis when auditing accounts payable?

Accepted Answer

A)  Existence. 
B)  Completeness. 
C)  Presentation. 
D)  Disclosure.

Question 5

Which of the following would the auditor most likely do when testing the existence assertion for inventory?

Accepted Answer

A)  Observe the client's count of the annual physical inventory and perform test counts. 
B)  Review vendor invoices for the amounts recorded. 
C)  Review open purchase orders at year end. 
D)  Trace raw material purchases to invoices and to the general ledger.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Substantive tests of accounts payable and related expense accounts for valuation usually involve simply verifying the mathematical accuracy of the accounts, and agreeing them to general ledger and supporting documentation.

Accepted Answer

A) True 
 B)False

Question 8

Which relationship might suggest a heightened risk of fraud in the acquisition and payment cycle?

Accepted Answer

A)  Unexpected increases in the number of suppliers. 
B)  A reduction in raw material costs. 
C)  Maturing capital assets with no plan for replacement. 
D)  Sales expenses growing in proportion to sales revenue.

Question 9

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

A) True 
 B)False

Question 10

Which of the following is NOT a reason why inventory is a complex accounting and auditing area?

Accepted Answer

A)  Diversity of items in inventory. 
B)  Low volume of activity. 
C)  Easily transportable. 
D)  Difficulty in applying the lower of cost or market principle.

Question 11

Which of the following is not a management assertion relevant to inventory?

Accepted Answer

A)  Existence or occurrence. 
B)  Completeness. 
C)  Rights and obligations. 
D)  Reporting.

Question 12

Auditing accounts payable.
What are the procedures available to auditors in auditing accounts payable and what level of assurance is obtained by each? Describe at least three. Which primary assertion is tested through these approaches?

Accepted Answer

The answer of Auditing accounts payable.
What are the procedures available...

Question 13

An auditor may best test commissions expense for salespeople when control risk is low by performing which of the following procedures?

Accepted Answer

A)  Analytical procedures. 
B)  Tagging and tracing. 
C)  Alternative procedures. 
D)  Subsequent proof of cash.

Question 14

Which of the following is not an inherent risk associated with inventory?

Accepted Answer

A)  Inventory accounts typically have a high volume of activity. 
B)  Inventory is easily transportable 
C)  Inventory may become obsolete. 
D)  Inventory costing methods frequently change from one year to the next.

Question 15

Accounting for inventories is a major consideration for many companies because of its significance to which of the following financial statements?

Accepted Answer

A)  Balance sheet. 
B)  Income statement. 
C)  Statement of Cash Flow 
D)  Both A and B.

Question 16

When testing a standard cost system, the auditor does not normally make which of the following inquiries?

Accepted Answer

A)  The method for developing standard costs. 
B)  The method for identifying components of overhead and of allocating overhead to products. 
C)  The method for identifying sales cutoff. 
D)  The method used for allocating variances to inventory and cost of goods sold.

Question 17

Comparison of Controls in Traditional and Automated Systems.
Discuss the differences between a traditional receiving system and an automated integrated receiving system.

Accepted Answer

The answer of Comparison of Controls in Traditional and Automated...

Question 18

When auditing expense accounts, which of the following would the auditor be least likely to subject to a detailed test of transactions?

Accepted Answer

A)  Legal expense. 
B)  Utilities expense. 
C)  Repairs and maintenance expense. 
D)  Travel expense.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

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.

Exam 11: Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

The auditor may discover that the recorded cost of inventory exceeds the designated market price when testing which assertion?

The cash account is not part of the acquisitions and payment cycle.

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

Which assertion has the greatest emphasis when auditing accounts payable?

Which of the following would the auditor most likely do when testing the existence assertion for inventory?

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

Substantive tests of accounts payable and related expense accounts for valuation usually involve simply verifying the mathematical accuracy of the accounts, and agreeing them to general ledger and supporting documentation.

Which relationship might suggest a heightened risk of fraud in the acquisition and payment cycle?

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

Which of the following is NOT a reason why inventory is a complex accounting and auditing area?

Which of the following is not a management assertion relevant to inventory?

Auditing accounts payable. What are the procedures available to auditors in auditing accounts payable and what level of assurance is obtained by each? Describe at least three. Which primary assertion is tested through these approaches?

An auditor may best test commissions expense for salespeople when control risk is low by performing which of the following procedures?

Which of the following is not an inherent risk associated with inventory?

Accounting for inventories is a major consideration for many companies because of its significance to which of the following financial statements?

When testing a standard cost system, the auditor does not normally make which of the following inquiries?

Comparison of Controls in Traditional and Automated Systems. Discuss the differences between a traditional receiving system and an automated integrated receiving system.

When auditing expense accounts, which of the following would the auditor be least likely to subject to a detailed test of transactions?

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

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