Auditing A Business Risk Approach International Edition 8th Edition By Audrey – Test Bank

Chapter 11: Audit of Acquisition and Payment Cycle and Inventory

TRUE/FALSE

1. Inventory is complex and typically considered a high-risk area in audits of service firms.

ANS: F PTS: 1 OBJ: Introduction
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

2. In order for the auditor to perform an engagement on a manufacturing firm, it is important that the entire integrated process is understood.

ANS: T PTS: 1 OBJ: Supply Chain
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

3. An indication of potential inventory fraud is that inventory levels are growing faster than sales.

ANS: T PTS: 1 OBJ: Fraud
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

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

ANS: F PTS: 1 OBJ: Payment and Acquisition Cycle
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

5. Supply chain management has helped many companies improve the efficiency of operations.

ANS: T PTS: 1 OBJ: Supply Chain
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

6. Management may intentionally misstate inventory balances by overvaluing items that are obsolete.

ANS: T PTS: 1 OBJ: Fraud
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

7. An auditor can utilize a cross-sectional analysis for a client operating in multiple locations to identify areas of further inventory testing.

ANS: T PTS: 1 OBJ: Analytics
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

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

ANS: F PTS: 1 OBJ: Analytics
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

9. The acquisition and payment cycle typically begins with the cash disbursement for requested raw materials.

ANS: F PTS: 1 OBJ: Processes and Controls
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

10. A major control benefit of a centralized purchasing department is the segregation of the authorization function from the custody and recording functions.

ANS: T PTS: 1 OBJ: Processes and Controls
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

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

ANS: F PTS: 1 OBJ: Processes and Controls
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking

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

ANS: T PTS: 1 OBJ: Processes and Controls
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking