TRUE-FALSE QUESTIONS

1. In terms of preliminary analytical procedures, assume that the company has introduced a new product with a low price point and significant customer demand. The auditor would expect inventory turnover to increase, and days' sales in inventory to also increase.

2. A preliminary analytical procedure in the acquisition and payment cycle that might indicate fraud is that inventory is growing at a rate greater than sales.

3. The following mix of evidence would be appropriate for a high risk client when conducting the audit of the acquisition and payment cycle: significant tests of internal controls, significant reliance on substantive analytical procedures, and limited tests of details.

4. When considering the appropriate mix of evidence, the sufficiency and appropriateness of selected procedures vary to achieve the desired level of assurance for each relevant assertion.

5. When selecting controls to test and performing tests of controls in the acquisition cycle, the auditor might reasonably take a sample of receiving reports and trace them through the system to test controls related to the completeness assertion for inventory and accounts payable.

6. When conducting the audit of acquisition and payment cycle accounts, the auditor will likely conduct less substantive tests for companies with effective internal controls compared to companies with ineffective internal controls.

7. A substantive procedure appropriate for testing the existence of inventory would be to perform year-end cutoff tests by noting the last shipping and receiving document numbers used before the physical inventory count is taken.

8. A substantive procedure appropriate for testing rights and obligations associated with inventory would be to review vendor invoices when testing disbursements to determine that proper title is conveyed.