AUDITING+ASSURANCE 12MONTH ACCESS CARD
17th Edition
ISBN: 9780135635131
Author: ARENS
Publisher: WILEY
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Chapter 21, Problem 13.2MCQ
To determine
Identify the reason behind a client’s physical inventory count that has been lower than the amount shown on the books at the time of the count.
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You have Noticed that the A/R clerk has created abnormally high number of credit memos . You also notice the inventory does not reflect the additional inventory resulting from the sales returns.
What would you do, and how would you document your decision?
What internal control procedure(s) would provide protection against the following threats?
a. Theft of goods by the shipping dock workers, who claim that the inventory shortages reflect errors in the inventory records.b. Posting the sales amount to the wrong customer account because a customer account number was incorrectly keyed into the system
.c. Making a credit sale to a customer who is already four months behind in making payments on his account.
d. Authorizing a credit memo for a sales return when the goods were never actually returned.
e. Writing off a customer’s accounts receivable balance as uncollectible to conceal the theft of subsequent cash payments from that customer.
f. Billing customers for the quantity ordered when the quantity shipped was actually less due to back ordering of some items
.g. Lost sales because of stockouts of several products for which the computer records indicated there was adequate quantity on hand.
h. A sales clerk sold a $7,000 wide-screen TV…
1. Which of the following is a control procedure to address the threat of purchasing goods or services at inflated prices?
A. Requiring multiple approvals for purchases
B. Performing regular physical inventory counts
C. Conducting vendor audits
D. Implementing encryption for sensitive data
2. Which of the following is not a common error in the expenditure cycle?
A. Recording the wrong purchase order number
B. Recording the wrong vendor name for goods received
C. Recording the wrong quantity of goods received
D. Recording the wrong price for goods received
3. The primary objective of internal controls in the expenditure cycle is to:
A. Ensure the accuracy and completeness of financial transactions
B. Streamline the procurement process
C. Minimize the cost of purchases
D. Increase the speed of payment processing
Chapter 21 Solutions
AUDITING+ASSURANCE 12MONTH ACCESS CARD
Ch. 21 - Prob. 1RQCh. 21 - Prob. 2RQCh. 21 - Prob. 3RQCh. 21 - Prob. 4RQCh. 21 - Prob. 5RQCh. 21 - Prob. 6RQCh. 21 - Prob. 7RQCh. 21 - Prob. 8RQCh. 21 - Prob. 9RQCh. 21 - Prob. 10RQ
Ch. 21 - Prob. 11RQCh. 21 - Each employee of the Gedding Manufacturing Co., a...Ch. 21 - Prob. 13.1MCQCh. 21 - Prob. 13.2MCQCh. 21 - Prob. 13.3MCQCh. 21 - Prob. 14.1MCQCh. 21 - Prob. 14.2MCQCh. 21 - Prob. 14.3MCQCh. 21 - Prob. 15.1MCQCh. 21 - Prob. 15.2MCQCh. 21 - Prob. 15.3MCQCh. 21 - Prob. 16DQPCh. 21 - Prob. 17DQPCh. 21 - Prob. 18DQPCh. 21 - Prob. 19DQPCh. 21 - Prob. 20DQPCh. 21 - Prob. 21DQPCh. 21 - Prob. 22DQPCh. 21 - Prob. 23DQPCh. 21 - Prob. 24DQPCh. 21 - Prob. 25DQPCh. 21 - Prob. 26DQPCh. 21 - Prob. 27DQPCh. 21 - Prob. 28DQPCh. 21 - Prob. 29DQPCh. 21 - Prob. 30C
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Similar questions
- A serious exposure in the ordering process of the expenditure cycle is increased inventory costs. What is the related threat and applicable control procedure that address this exposure? A. mistakes in counting; do not inform receiving employees about quantity ordered B. paying for items not received; requiring that all supplier invoices be matched to supporting documents C. purchasing at inflated prices; review of purchase orders D. theft of inventory; periodic physical counts of inventory and reconciliation to recorded quantities E. mistakes in posting to accounts payable; reconciliation of detailed accounts payable to the general ledger control accountarrow_forwardAs the lead accountant for a small company, you notice that inventory purchases from a certain vendor have increased dramatically over the past few months, whereas purchases from all other vendors have decreased. You suspect that something may not be right and that there may be a fraudulent relationship between someone in your company and the vendor that is getting increased business. question: Which theft act investigative method would you use to investigate your suspicions? state evidences that you to support suspicions.arrow_forwardThe physical count of inventory of a retailer was lower than shown by the perpetual records. Which of the following could explain the difference? a. Some tags for specific inventory items had mistakenly overstated the amount of those items. b. Credit memos for several items returned by customers had not been recorded. c. No journal entry had been made on the retailer's books for several items returned to its suppliers. d. An item purchased "FOB destination" had not arrived at the date of the inventory count and had not been reflected in the perpetual records.arrow_forward
- 28. Which of the following would be a red flag that internal auditors should look at for the possibility of inventory fraud?I. The controller has assumed responsibility for approving all payments to certain vendors.II. The controller has continuously delayed installation of a new accounts payable system, despite a corporate directive to implement it.III. Sales commissions are not consistent with the organization's increased levels of sales.IV. Payments to vendors are supported by copies of receiving memos, rather than originals. Group of answer choices I and II only II and III only I, II, and IV only I, II, III, and IV I, III, and IV onlyarrow_forwardA retailer’s physical count of inventory was higher than that shown by the perpetual records.Which of the following could explain the difference?a. Inventory items had been counted, but the tags placed on the items had not been taken off and added to the inventory accumulation sheets.b. Credit memos for several items returned by customers had not been recorded.c. No journal entry had been made on the retailer’s books for several items returned to its suppliers.d. An item purchased FOB shipping point had not arrived at the date of the inventory count and had not been reflected in the perpetual records.arrow_forwardExplain inventory overstatement. A merchandising company has asked you to advise it on how to detect fraudulent financial reporting. Management wants your help in detecting inventory overstatement. Further, management wants to know how to find evidence of inventory overstatement. Using your own numbers, make up an example to show management the effect of overstating inventory. Show how inventory overstatement at the end of Year 1 carries through to the beginning inventory overstatement in Year 2. Prepare a brief report to management suggesting ways management could detect inventory overstatement.arrow_forward
- Which situation indicates a weak internal control structure?a. the AR clerk authorizes the write off of bad debtsb. the record-keeping clerk maintains both AR and AP subsidiary ledgersc. the inventory control clerk authorizes inventory purchasesd. the AR clerk prepares customer statements every montharrow_forwardWhich of the following may be an indication of inventory theft? COGS is significantly different from the forecast amount a physical count of inventory reveals missing items inventory turnover shows an abnormal increase gross profit falls significantly e. all of the abovearrow_forwardA company is trying to set up proper internal controls for their accounts payable/inventory purchasing system. Currently the purchase order is generated by the same person who receives the inventory. Together the purchase order and the receiving ticket are sent to accounts payable for payment. What changes would you make to improve the internal control structure? A. No changes would be made since the person paying the bills is different from the person ordering the inventory. B. The person in accounts payable should generate the purchase order. C. The person in accounts payable should generate the receiving ticket once the invoice from the supplier is received. D. The responsibilities of generating the purchase order and receiving the inventory should be separated among two different people.arrow_forward
- A company forgets to record a purchase on credit in the purchases account, but ending inventory is correct. The effect of this mistake in the current year is:arrow_forwardWhich of the following is an example of fraudulent financial reporting? a. The treasurer diverts customer payments to his personal due, concealing his actions by debiting an expense account, thus overstating expenses. O b. An employee steals inventory and the "shrinkage" is recorded in cost of goods sold. O c. Company management changes inventory count tags and overstates ending inventory, while understating cost of goods sold. O d. An employee steals small tools from the company and neglects to return them; the cost is reported as a miscellaneous operating expense.arrow_forwardFrom the auditors’ point of view, inventory counts are more acceptable prior to the year-endwhena. Internal control is weak.b. Accurate perpetual inventory records are maintained.c. Inventory is slow moving.d. Significant amounts of inventory are held on a consignment basisarrow_forward
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