An employee in the receiving department keyed in a shipment to the accounts payable system and inadvertently omitted the purchase order number. The best systems control to detect this error is:
Correct Answer: A
A completeness test checks that all data elements are entered before processing. An interactive system can be programmed to notify the user to enter the number before accepting the receiving report.
Question 17
A local area network LAN) is best described as a(n):
Correct Answer: A
A LAN is a local distributed computer system, often housed within a single building. Computers, communication devices, and other equipment are linked by cable. Special software facilitates efficient data communication among the hardware devices.
Question 18
Which of the following techniques would be least effective in resolving the conflict created by an internal audit client's perception of the audit report as a personal attack on his management performance?
Correct Answer: B
Question 19
Which of the following best describes a transformational leader, as opposed to a transactional leader?
Correct Answer: C
Question 20
Which of the following represents an inventory costing technique that can be manipulated by management to boost net income by selling units purchased at a low cost?
Correct Answer: A
The FIFO (First-In, First-Out) method values inventory based on the assumption that older, lower-cost inventory is sold first, leaving newer, higher-cost inventory in stock. During periods of rising prices, FIFO results in lower cost of goods sold (COGS) and higher net income, making it susceptible to manipulation by management. (A) Correct - First-in, first-out method (FIFO). FIFO lowers COGS when older, cheaper inventory is sold first, inflating net income. Management can manipulate earnings by selectively selling older, lower-cost inventory. (B) Incorrect - Last-in, first-out method (LIFO). LIFO assumes newer, higher-cost inventory is sold first, resulting in higher COGS and lower net income. LIFO is typically used to reduce taxable income, not to inflate net income. (C) Incorrect - Specific identification method. This method tracks the exact cost of each unit, eliminating the ability to manipulate costs easily. (D) Incorrect - Average-cost method. The average-cost method smooths out fluctuations in inventory costs, preventing significant income manipulation. IIA's Global Internal Audit Standards - Financial Reporting and Inventory Valuation Risks Discusses inventory accounting methods and their impact on financial statements. IFRS and GAAP Accounting Standards - Inventory Valuation Defines how FIFO can be used to influence financial performance. COSO's ERM Framework - Financial Manipulation Risks Identifies inventory valuation as an area where earnings management can occur. Analysis of Answer Choices:IIA References and Internal Auditing Standards:
