Question 1

Legal expenses are reviewed by auditors for possible litigation and related FAS 5 treatment.

Accepted Answer

A) True 
 B)False

Question 2

An internal control benefit of centralized purchasing in an organization includes which of the following?

Accepted Answer

A)  Separation of authorization from the custody and recording function. 
B)  An increase in the number of vendors used. 
C)  Increased compensation of agents through side agreements. 
D)  Mathematically accurate vendor invoices. 
A)  Separation of authorization from the custody and recording function. 
B)  An increase in the number of vendors used. 
C)  Increased compensation of agents through side agreements. 
D)  Mathematically accurate vendor invoices.

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

The auditor is required by generally accepted accounting principles (GAAP) to observe the taking of physical inventory.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following procedures would the auditor perform in testing the completeness assertion for accounts payable?

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 6

Inventory turnover is often calculated by the auditor for proper disclosure in client financial statements.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is NOT an example of fraud in the acquisition and payment cycle?

Accepted Answer

A)  Theft of inventory by employees. 
B)  Inventory shrinkage. 
C)  Large manual adjustments to inventory accounts. 
D)  Excess inventory because of a production slowdown. 
A)  Theft of inventory by employees. 
B)  Inventory shrinkage. 
C)  Large manual adjustments to inventory accounts. 
D)  Excess inventory because of a production slowdown.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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. 
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 10

The use of analytical review procedures applied to related expense accounts would not be used to determine if accounts payable were understated.

Accepted Answer

A) True 
 B)False

Question 11

Approval of items for payment usually involves a three-way match among the vendor invoice, the purchase order, and the receiving report.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Question 14

An auditor reviews purchase contracts to assess the conditions for the return of merchandise as a test related to which management assertion?

Accepted Answer

A)  Existence 
B)  Completeness 
C)  Rights and Obligations 
D)  Valuation 
A)  Existence 
B)  Completeness 
C)  Rights and Obligations 
D)  Valuation

Question 15

The acquisition and payment cycle includes processes for identifying products or services to be acquired, purchasing goods and services, receiving the goods, approving payments, and paying for goods and services received.

Accepted Answer

A) True 
 B)False

Question 16

Inventory obsolescence procedures.
Identify and describe at least four procedures the audit team may perform in order to determine potential obsolescence of items in the inventory balances.

Accepted Answer

Below are seven audit procedures that ma

Question 17

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 18

The principle of lower of cost or market and the potential obsolescence of inventory are a concern for the audit team because of which of the following?

Accepted Answer

A)  They are uncommon and may not exist. 
B)  They are a burden to the auditor in the undue amount of work caused. 
C)  They are likely to occur in the last month of the year and cause cutoff problems. 
D)  They are an inherent component of complexity related to valuation. 
A)  They are uncommon and may not exist. 
B)  They are a burden to the auditor in the undue amount of work caused. 
C)  They are likely to occur in the last month of the year and cause cutoff problems. 
D)  They are an inherent component of complexity related to valuation.

Question 19

Many frauds are committed by overstating inventory accounts.

Accepted Answer

A) True 
 B)False

Question 20

The lower of cost or market assumption is not important to valuation of inventory.

Accepted Answer

A) True 
 B)False

Legal expenses are reviewed by auditors for possible litigation and related FAS 5 treatment.

An internal control benefit of centralized purchasing in an organization includes which of the following?

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

The auditor is required by generally accepted accounting principles (GAAP) to observe the taking of physical inventory.

Which of the following procedures would the auditor perform in testing the completeness assertion for accounts payable?

Inventory turnover is often calculated by the auditor for proper disclosure in client financial statements.

Which of the following is NOT an example of fraud in the acquisition and payment cycle?

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

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

The use of analytical review procedures applied to related expense accounts would not be used to determine if accounts payable were understated.

Approval of items for payment usually involves a three-way match among the vendor invoice, the purchase order, and the receiving report.

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

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.

An auditor reviews purchase contracts to assess the conditions for the return of merchandise as a test related to which management assertion?

The acquisition and payment cycle includes processes for identifying products or services to be acquired, purchasing goods and services, receiving the goods, approving payments, and paying for goods and services received.

Inventory obsolescence procedures. Identify and describe at least four procedures the audit team may perform in order to determine potential obsolescence of items in the inventory balances.

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."

The principle of lower of cost or market and the potential obsolescence of inventory are a concern for the audit team because of which of the following?

Many frauds are committed by overstating inventory accounts.

The lower of cost or market assumption is not important to valuation of inventory.

Auditing: Integral to the Economy

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Professional Liability, Auditor Judgment Frameworks, and Professional Responsibilities

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters

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

Legal expenses are reviewed by auditors for possible litigation and related FAS 5 treatment.

An internal control benefit of centralized purchasing in an organization includes which of the following?

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

The auditor is required by generally accepted accounting principles (GAAP) to observe the taking of physical inventory.

Which of the following procedures would the auditor perform in testing the completeness assertion for accounts payable?

Inventory turnover is often calculated by the auditor for proper disclosure in client financial statements.

Which of the following is NOT an example of fraud in the acquisition and payment cycle?

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

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

The use of analytical review procedures applied to related expense accounts would not be used to determine if accounts payable were understated.

Approval of items for payment usually involves a three-way match among the vendor invoice, the purchase order, and the receiving report.

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

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.

An auditor reviews purchase contracts to assess the conditions for the return of merchandise as a test related to which management assertion?

The acquisition and payment cycle includes processes for identifying products or services to be acquired, purchasing goods and services, receiving the goods, approving payments, and paying for goods and services received.

Inventory obsolescence procedures. Identify and describe at least four procedures the audit team may perform in order to determine potential obsolescence of items in the inventory balances.

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."

The principle of lower of cost or market and the potential obsolescence of inventory are a concern for the audit team because of which of the following?

Many frauds are committed by overstating inventory accounts.

The lower of cost or market assumption is not important to valuation of inventory.

Auditing: Integral to the Economy

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Professional Liability, Auditor Judgment Frameworks, and Professional Responsibilities

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters