Give specific examples of how these two types of tests affect each other.

A$.$

The auditor must always perform full tests of internal controls of the acquisition and payment cycle and tests of inventory. The results of one test have no bearing on the extent of the other test.

B$.$

It is never necessary for an auditor to perform both tests of internal controls of the acquisition and payment cycle and tests of inventory. The auditor can choose which test will be more efficient.

C$.$

If the tests of internal controls of the acquisition and payment cycle indicate that proper controls do not exist to ensure that the proper cost is used in valuing the inventory and that new purchases of inventory are recorded at the proper$$ time, in the proper$$ amount, and in the proper$$ account, tests concerned with the accuracy and cutoff of the inventory accounts are not necessary.

D$.$

If the tests of internal controls of the acquisition and payment cycle indicate that proper controls exist to ensure that the proper cost is used in valuing the inventory and that new purchases of inventory are recorded at the proper$$ time, in the proper$$ amount, and in the proper$$ account, tests concerned with the accuracy and cutoff of the inventory accounts may be reduced from that level required if the controls were not adequate.