Auditing Inventory and Accounts Payable

The primary objective of auditing inventory is to: a. Verify the accuracy of the inventory count. b. Determine the fair market value of inventory. c. Assess the effectiveness of internal controls over inventory. d. All of the above.

• Verify the accuracy of the inventory count

• Determine the fair market value of inventory

• Assess the effectiveness of internal controls over inventory

• All of the above

Which of the following is NOT a common audit procedure for inventory? a. Observation of physical inventory count. b. Comparison of inventory records to purchase orders and receiving reports. c. Analytical procedures, such as comparing inventory turnover ratios to industry averages. d. Testing the effectiveness of internal controls over inventory.

• Observation of physical inventory count

• Comparison of inventory records to purchase orders and receiving reports

• Analytical procedures, such as comparing inventory turnover ratios to industry averages

• Testing the effectiveness of internal controls over inventory

What is the purpose of a three-way match in inventory auditing? a. To compare the physical inventory count to the inventory master file. b. To verify that all purchase orders have been received and recorded. c. To ensure that all invoices have been approved for payment. d. To match purchase orders, receiving reports, and vendor invoices.

• To compare the physical inventory count to the inventory master file

• To verify that all purchase orders have been received and recorded

• To ensure that all invoices have been approved for payment

• To match purchase orders, receiving reports, and vendor invoices

Which of the following is NOT a risk associated with accounts payable? a. Overstatement of liabilities. b. Understatement of inventory. c. Duplicate payments. d. Fraudulent payments.

• Overstatement of liabilities

• Understatement of inventory

• Duplicate payments

• Fraudulent payments

What is the purpose of confirming accounts payable balances with vendors? a. To verify the accuracy of the accounts payable ledger. b. To identify any unrecorded liabilities. c. To assess the risk of fraud. d. All of the above.

• To verify the accuracy of the accounts payable ledger

• To identify any unrecorded liabilities

• To assess the risk of fraud

• All of the above

Which of the following is NOT a common audit procedure for accounts payable? a. Vouching of payments to supporting documentation. b. Reconciliation of the accounts payable sub-ledger to the general ledger. c. Cutoff testing of transactions at the end of the period. d. Analyzing aging reports to identify past due invoices.

• Vouching of payments to supporting documentation

• Reconciliation of the accounts payable sub-ledger to the general ledger

• Cutoff testing of transactions at the end of the period

• Analyzing aging reports to identify past due invoices

What is the purpose of aging accounts payable balances? a. To identify potential liquidity problems. b. To assess the risk of fraud. c. To determine the appropriate allowance for doubtful accounts. d. All of the above.

• To identify potential liquidity problems

• To assess the risk of fraud

• To determine the appropriate allowance for doubtful accounts

• All of the above

What is a contingent liability in the context of accounts payable? a. A liability that is certain to occur in the future. b. A liability that is possible but not certain to occur. c. A liability that has been disputed by the vendor. d. A liability that has been settled by the company.

• A liability that is certain to occur in the future

• A liability that is possible but not certain to occur

• A liability that has been disputed by the vendor

• A liability that has been settled by the company

What is the primary concern when auditing related-party accounts payable? a. Overstatement of liabilities. b. Understatement of liabilities. c. Lack of proper documentation. d. Conflict of interest.

• Overstatement of liabilities

• Understatement of liabilities

• Lack of proper documentation

• Conflict of interest

What is the purpose of reconciling the accounts payable sub-ledger to the general ledger? a. To ensure that all transactions have been recorded accurately. b. To identify any duplicate payments. c. To determine the appropriate allowance for doubtful accounts. d. All of the above.

• To ensure that all transactions have been recorded accurately

• To identify any duplicate payments

• To determine the appropriate allowance for doubtful accounts

• All of the above