APP Auditing Principles & Procedures 2 — Questions and Answers
Question 1: During a procurement audit, the auditor discovers that a buyer consistently awarded contracts to a single vendor without soliciting competing bids. Which audit finding category best describes this situation?
- Control deficiency
- Fraud indicator
- Compliance violation (Correct answer)
- Operational inefficiency
Correct answer: Compliance violation
Bypassing the competitive bidding requirement is a compliance violation because it breaches established procurement policies and regulations.
Question 2: What is the primary purpose of an exit conference at the conclusion of a procurement audit?
- To finalize the audit report before management review
- To present preliminary findings and obtain management's response (Correct answer)
- To assign corrective action deadlines to department heads
- To distribute the final audit report to all stakeholders
Correct answer: To present preliminary findings and obtain management's response
The exit conference allows auditors to present preliminary findings so management can clarify facts and provide initial responses before the final report is issued.
Question 3: An auditor is reviewing purchase orders and notices that several POs lack an authorized signature but were still processed. This is an example of a breakdown in which internal control type?
- Detective control
- Corrective control
- Preventive control (Correct answer)
- Compensating control
Correct answer: Preventive control
Authorization requirements are preventive controls designed to stop unauthorized transactions before they occur.
Question 4: Which sampling method is most appropriate when an auditor wants to estimate the total dollar error in a large population of invoices?
- Attribute sampling
- Discovery sampling
- Monetary unit sampling (Correct answer)
- Judgmental sampling
Correct answer: Monetary unit sampling
Monetary unit sampling (MUS) weights selections by dollar amount, making it ideal for estimating total dollar misstatement in a population.
Question 5: A procurement auditor wants to verify that goods received match what was ordered and invoiced. Which three-way match procedure should be performed?
- Match PO, invoice, and vendor contract
- Match requisition, PO, and vendor catalog
- Match PO, receiving report, and invoice (Correct answer)
- Match invoice, payment record, and budget approval
Correct answer: Match PO, receiving report, and invoice
The three-way match compares the purchase order, receiving report, and vendor invoice to confirm quantity, price, and item accuracy before payment.
Question 6: When auditing a vendor selection process, which condition would most likely indicate bid rigging?
- All bids were submitted electronically
- Losing bidders' prices were clustered just above the winning bid (Correct answer)
- The winning vendor had the longest relationship with the organization
- Bids were opened in the presence of multiple witnesses
Correct answer: Losing bidders' prices were clustered just above the winning bid
Prices clustered just above the winner suggest competitors deliberately bid high to let a pre-selected vendor win, a classic bid rigging pattern.
Question 7: Which documentation is considered the most reliable audit evidence when verifying that goods were received?
- Vendor's packing slip
- Buyer's purchase order copy
- Internally prepared receiving report signed by receiving staff (Correct answer)
- Vendor invoice stamped 'paid'
Correct answer: Internally prepared receiving report signed by receiving staff
An internally prepared and signed receiving report is the most reliable evidence because it is created by the organization's own staff at the point of physical receipt.
APP Auditing Principles & Procedures 2
During a procurement audit, the auditor discovers that a buyer consistently awarded contracts to a single vendor without soliciting competing bids.
Which audit finding category best describes this situation?