A Proactive Computer Audit Test to Detect When Inventory Prices

question 2

Multiple Choice

A proactive computer audit test to detect when inventory prices may be higher than normal as part of a fraud scheme would not include:

• A) Identify a retail price less than the inventory price
• B) Examine the gross margin by inventory item for smaller-than-normal gross margins
• C) Examine the competitive bidding process for each inventory item to determine if the low bidder has been awarded contracts consistently
• D) Examine accounts receivable turnover by customer

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Definitions:

Direct Method

A cash flow statement preparation approach that lists major cash receipts and payments during the period.

Bad Debts Recovered

Previously written off debts that have unexpectedly been collected.

Allowance Method

An accounting technique used to estimate and account for bad debts, allowing companies to anticipate uncollectible accounts receivables.

Bad Debts Expense

An expense account reflecting the value of sales that were made on credit and are unlikely to be collected.