Question 1

Why should the client's legal expenses be examined?

Accepted Answer

A)  To compare with previously released attorney's letters.
B)  To determine the types of fraud occurring in the organization.
C)  To ensure proper recording of vendor payables.
D)  To determine if there is any litigation pending or threatened.

Question 2

Many frauds are committed by overstating inventory accounts.

Accepted Answer

A) True 
 B)False

Question 3

Prenumbered receiving documents establish the completeness of the population and are useful in determining that all goods are recorded in the correct period.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is a procedure used in an audit where there is a heightened risk of fraud related to accounts payable and other related expense accounts?

Accepted Answer

A)  Send blank confirmations to vendors that ask them information about all outstanding invoices,payment terms,payment histories,and so forth.
B)  Scan journals for unusual or large year-end transactions and adjustments.
C)  Obtain and examine documentation for payments of invoices that are for amounts just under the limit that typically requires some level of approval.
D)  All the above.

Question 5

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 6

Please indicate the proper sequence of the acquisition cycle: 1.Approval of items for payment. 2.Authorized requisition for goods or services. 3.Cash disbursements. 4.Receipt of goods and services. 5.Authorized purchase of goods or services.

Accepted Answer

A)  2,5,4,1,3
B)  2,4,5,1,3
C)  2,1,4,5,3
D)  2,5,1,4,3

Question 7

The auditor tests significant repairs and maintenance expenses to ensure that an item that should be capitalized has not been expensed.

Accepted Answer

A) True 
 B)False

Question 8

The internal control that requires that "checks are pre-numbered and accounted for" satisfies which assertion?

Accepted Answer

A)  Accuracy.
B)  Existence.
C)  Completeness.
D)  Posting and summarization.

Question 9

Proper internal control over the inventory account would require that inventory items should be reviewed for obsolescence and proper accounting treatment.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is an example of the type of analytics that an auditor would use for inventory?

Accepted Answer

A)  Number of day's sales in receivables compared to industry averages.
B)  Inventory turnover for the previous five years.
C)  Number of obsolete units this period compared to last.
D)  Salaries of marketing personnel as a percent of total inventory.

Question 11

Physical inventory procedures Discuss the procedures that the audit team will most likely perform upon arrival at each site right before physical inventory is taken.

Accepted Answer

· Obtain a map of the area and a schedul...

Question 12

Which of the following accounts is NOT a major account in the acquisition and payment cycle?

Accepted Answer

A)  Inventory.
B)  Cost of goods sold.
C)  Accounts payable.
D)  All of the above are major accounts.

Question 13

A primary feature of automated control in the acquisition cycle includes which of the following?

Accepted Answer

A)  That authorization is no longer required.
B)  Limits as to the number of items that can be received by the warehouse.
C)  Calculated order quantities based on set criteria.
D)  Funds transfer at the request of the controller.

Question 14

What is the primary reason for management's ability to easily overvalue inventory without rapid detection by auditors?

Accepted Answer

A)  The limited volume of transactions in the inventory accounts.
B)  The auditor's assessment of inventory as a low-risk area.
C)  Complexity in the valuation of inventory.
D)  Consideration by the auditor of non-financial indicators of inventory fraud.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not a potential fraud indicator in the acquisition cycle?

Accepted Answer

A)  Expenses that are significantly above or below industry norms.
B)  Expense accounts that have significant debit entries.
C)  Unexpected increases in gross margin.
D)  Capital assets that seem to be growing faster than the business.

Question 17

Valuation is the most complex assertion related to inventory.

Accepted Answer

A) True 
 B)False

Question 18

During the counting process of inventory,the client arranges not to ship or receive goods or segregates all goods received during the process to be labeled and counted as "after inventory."

Accepted Answer

A) True 
 B)False

Question 19

The auditor in making inquiries regarding the standard cost systems normally does not 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 identifying variances,following up on their causes,and allocating them to inventory and cost of goods sold.

Question 20

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

Accepted Answer

A) True 
 B)False

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

Proper internal control over the inventory account would require that inventory items should be reviewed for obsolescence and proper accounting treatment.

Correct AnswerverifiedShow Answer

Which of the following is an example of the type of analytics that an auditor would use for inventory?

Correct AnswerverifiedShow Answer

The auditor in making inquiries regarding the standard cost systems normally does not make which of the following inquiries?

Correct AnswerverifiedShow Answer

What is the primary reason for management's ability to easily overvalue inventory without rapid detection by auditors?

Correct AnswerverifiedShow Answer

Physical inventory procedures Discuss the procedures that the audit team will most likely perform upon arrival at each site right before physical inventory is taken.

Correct Answerverified· Obtain a map of the area and a schedul...View AnswerShow Answer

Please indicate the proper sequence of the acquisition cycle: 1.Approval of items for payment. 2.Authorized requisition for goods or services. 3.Cash disbursements. 4.Receipt of goods and services. 5.Authorized purchase of goods or services.

Correct AnswerverifiedShow Answer

Which of the following is a procedure used in an audit where there is a heightened risk of fraud related to accounts payable and other related expense accounts?

Correct AnswerverifiedShow Answer

During the counting process of inventory,the client arranges not to ship or receive goods or segregates all goods received during the process to be labeled and counted as "after inventory."

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a potential fraud indicator in the acquisition cycle?

Correct AnswerverifiedShow Answer

Valuation is the most complex assertion related to inventory.

Correct AnswerverifiedShow Answer

Prenumbered receiving documents establish the completeness of the population and are useful in determining that all goods are recorded in the correct period.

Correct AnswerverifiedShow Answer

A primary feature of automated control in the acquisition cycle includes which of the following?

Correct AnswerverifiedShow Answer

Many frauds are committed by overstating inventory accounts.

Correct AnswerverifiedShow Answer

The internal control that requires that "checks are pre-numbered and accounted for" satisfies which assertion?

Correct AnswerverifiedShow Answer

Which of the following accounts is NOT a major account in the acquisition and payment cycle?

Correct AnswerverifiedShow Answer

The auditor tests significant repairs and maintenance expenses to ensure that an item that should be capitalized has not been expensed.

Correct AnswerverifiedShow Answer

Why should the client's legal expenses be examined?

Correct AnswerverifiedShow Answer

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· Obtain a map of the area and a schedul...
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