Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

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. D

Question 3

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

Accepted Answer

A)   Existence.
B)   Rights.
C)   Presentation and disclosure.
D)   Completeness. D

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

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.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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?

Accepted Answer

A)   The inventory valuation methods used.
B)   The amount of obsolete inventory on hand.
C)   The existence of contingent losses associated with long-term purchase commitments.
D)   The classification of inventory as raw material, work in process or finished goods.

Question 9

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 10

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 11

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

Accepted Answer

A)   Purchasing promotes efficiency and effectiveness.
B)   Purchasing eliminates potential favoritism.
C)   Purchasing reduces the opportunity for fraud.
D)   Purchasing decentralizes control.

Question 12

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?

Accepted Answer

A)   The control risk over inventory is high.
B)   The auditor will be able to review material transactions in the roll-forward period.
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 13

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?

Accepted Answer

A)   Invoices representing the more recent purchases of inventory.
B)   Invoices representing the purchase of base year inventory in the year of inception.
C)   Shipping documents for a sample of cost of goods sold transactions during the year.
D)   Shipping documents for a sample of units on hand in the interim period.

Question 14

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 15

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

Accepted Answer

The answer of Centralized purchasing.
List the advantages for implementing a...

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Most organizations use a perpetual inventory system to manage inventory.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

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.