Chapter 11: Audit of Acquisition and Payment Cycle and Inventory Chapter 11: Audit of Acquisition and Payment Cycle and Inventory Student: ___________________________________________________________________________ 1. Inventory is complex and typically considered a high-risk area in audits of service firms. True False 2. In order for the auditor to perform an engagement on a manufacturing firm, it is important that the entire integrated process is understood. True False 3. An indication of potential inventory fraud is that inventory levels are growing faster than sales. True False 4. The acquisition process begins with a purchase of goods or services True False 5. Supply chain management has helped many companies improve the efficiency of operations. True False 6. Management may intentionally misstate inventory balances by overvaluing items that are obsolete. True False 7. An auditor can utilize a cross-sectional analysis for a client operating in multiple locations to identify areas of further inventory testing. True False
8. Inventory turnover is often calculated by the auditor for proper disclosure in client financial statements. True False 9. The acquisition and payment cycle typically begins with the cash disbursement for requested raw materials. True False 10. A major control benefit of a centralized purchasing department is the segregation of the authorization function from the custody and recording functions. True False 11. A purchase order identifies the quantity and description of products that have been received. True False 12. For proper control, the receiving department should receive a copy of the purchase order that has the quantities blanked out. True False 13. An individual outside of the purchasing department should be the only individual with access to the vendor tables in the database. True False 14. The auditor's primary concern with accounts payable is that of existence. True False 15. Reconciliation of vendor statements to recorded payables provides assurance related to the completeness assertion. True False 16. The auditor would most likely use attribute sampling to test transactions in the acquisition cycle for timeliness of recording transactions. True False
17. Open invoice files are reviewed subsequent to the year under audit in order to locate expenses that should be reclassified on the income statement. True False 18. The primary assertion to be tested on accounts payable is the existence assertion. True False 19. The use of analytical review procedures applied to related expense accounts would not be used to determine if accounts payable were understated. True False 20. Analytical review of related expense accounts when auditing accounts payable would be used when control risk is assessed as low. True False
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