Certified Internal Auditor (CIA) Part 1: Business Acumen — Question 51

A manufacturer uses a materials requirements planning (MRP) system to track inventory, orders, and raw materials requirements. What condition should an auditor search for in the MRP database if a preliminary assessment indicated that inventory is understated?
I. Item cost set at zero.
II. Negative quantities on hand.
III. Order quantity exceeding requirements.
IV. Inventory lead times exceeding delivery schedule.

Answer options

• A. I and II only
• B. I and IV only
• C. II and IV only
• D. III and IV only

Correct answer: A

Explanation

The correct answer is A because having an item cost set at zero (I) can lead to an understatement of inventory, as it indicates that no value is assigned to the stock. Additionally, negative quantities on hand (II) directly imply that the inventory levels are inaccurate. The other options include conditions that do not necessarily indicate an inventory understatement.