The Audit Team Asks the Client to Pull a Sample

question 26

Multiple Choice

The audit team asks the client to pull a sample of vendor files and examines the invoices supporting the purchases of inventory items during the year.What is the most probable reason for the use of this evidence?

• A)Confirmation of vendors supplying inventory for existence.
• B)Analytical procedures to determine completeness of inventory.
• C)Testing for the valuation of inventory using the FIFO cost flow assumption.
• D)Reading the terms of the arrangements with vendors for disclosure.

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Definitions:

Accounts Receivable

Accounts receivable refers to the money owed to a company by its customers for goods or services delivered but not yet paid for, representing a line of credit from the company to the customer.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term health and efficiency of its operations.

Spontaneous Financing

Financing that arises naturally from the operations of a company, such as trade credit that increases as sales grow, without requiring explicit negotiation or arrangements.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity and operational efficiency.