CIM Inventory Auditing & Data Accuracy 5 — Questions and Answers
Question 1: Which type of inventory variance is most likely to trigger a formal investigation rather than an automatic adjustment?
- A variance below the established dollar threshold
- A variance that exceeds the dollar or percentage tolerance defined in audit policy (Correct answer)
- A positive variance (overage) regardless of size
- Any variance in C-class items
Correct answer: A variance that exceeds the dollar or percentage tolerance defined in audit policy
Audit policies define tolerance thresholds; variances exceeding those thresholds require investigation to identify root cause before an adjustment is approved.
Question 2: A perpetual inventory system maintains accuracy by:
- Counting all items once per year
- Recording every inventory transaction in real time as items are received, moved, or shipped (Correct answer)
- Estimating inventory levels using historical sales data
- Relying solely on supplier invoices for quantity data
Correct answer: Recording every inventory transaction in real time as items are received, moved, or shipped
A perpetual system updates records with each transaction, providing a continuously current on-hand quantity rather than a periodic snapshot.
Question 3: Which statistical technique is used in cycle counting to determine the sample size needed to achieve a desired confidence level in inventory accuracy?
- Pareto analysis
- Statistical Process Control (SPC)
- Stratified random sampling (Correct answer)
- Economic order quantity (EOQ)
Correct answer: Stratified random sampling
Stratified random sampling divides inventory into strata (e.g., ABC classes) and selects random samples from each to produce statistically valid accuracy estimates.
Question 4: When an inventory audit reveals consistent negative variances (system shows more than physical) in a specific product category, the investigation should first examine:
- Whether the WMS software has a bug
- Outbound transaction processes — picking, shipping, and returns — for that category (Correct answer)
- Supplier packaging changes
- Whether the items were reclassified to a different category
Correct answer: Outbound transaction processes — picking, shipping, and returns — for that category
Consistent negative variances suggest unrecorded outbound movements — unscanned picks, shipping without system updates, or improperly processed customer returns.
Question 5: An inventory audit that is conducted by an independent external party provides which primary benefit over an internal audit?
- It is always more cost-effective than using internal staff
- It provides an unbiased assessment free from internal conflicts of interest (Correct answer)
- External auditors have access to proprietary industry benchmarks unavailable internally
- It guarantees zero inventory discrepancies after completion
Correct answer: It provides an unbiased assessment free from internal conflicts of interest
External auditors are independent of management pressures and internal biases, giving their findings greater credibility for financial reporting and governance purposes.
Question 6: The 'two-bin' visual replenishment system supports inventory accuracy primarily by:
- Eliminating the need for any system-based tracking
- Making stock levels physically visible so shortfalls are detected before they affect operations (Correct answer)
- Automatically ordering replacement stock via EDI
- Reducing the number of SKUs that need to be managed
Correct answer: Making stock levels physically visible so shortfalls are detected before they affect operations
The two-bin system uses physical container depletion as a visual signal, reducing reliance on potentially inaccurate system records for replenishment triggers.
Question 7: Which of the following best describes 'shrinkage' in the context of inventory auditing?
- Physical reduction in item size due to storage conditions
- The unexplained loss of inventory due to theft, damage, administrative errors, or vendor fraud (Correct answer)
- Planned reduction of safety stock levels
- Compression of lead times through supplier negotiations
Correct answer: The unexplained loss of inventory due to theft, damage, administrative errors, or vendor fraud
Shrinkage encompasses all unexplained inventory losses and is quantified as the gap between book inventory and physical count after accounting for known transactions.
CIM Inventory Auditing & Data Accuracy 5
Which type of inventory variance is most likely to trigger a formal investigation rather than an automatic adjustment?