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

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

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

Reduction of the risk of understated payables can be accomplished by focusing on which assertion?

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

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

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

A walkthrough is typically not a useful means of obtaining information about controls in the acquisition and payment cycle.

Which of the following is not an item reviewed by the auditor to test the client's assertion related to the presentation and disclosure of inventory?

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.

Why should the client's legal expenses be examined?

Which of the following is not a rationale for purchasing to be a separate function?

Which of the following is a condition which would not create a conducive situation for a client to take a physical inventory at an interim date before year end?

Auditing the valuation assertion for inventory of a client utilizing the FIFO cost flow assumption will require the auditor to examine which of the following?

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.

Centralized purchasing. List the advantages for implementing a centralized purchasing function. What are the disadvantages (if any)?

Inventory may become obsolete because of technological advances even though there are no signs of physical wear.

Stable relationships are expected between specific accounts (for example, cost of goods sold and sales) that can be investigated for unusual discrepancies.

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

Most organizations use a perpetual inventory system to manage inventory.

Test counts are performed by the auditor to give the impression of control and they are not used for substantive testing.