Question

During interviews with the inventory management personnel, an internal auditor learned that salespersons often order inventory for stock without receiving the approval of the vice president of sales. Also, detail testing showed that there are no written approvals on purchase orders for replacement parts. The results of detail testing are a good example of?

1) Indirect information
2) Circumstantial information
3) Corroborative information
4) Subjective information

Answer 1

The detail testing results in the internal audit scenario are an example of circumstantial information. Imperfect information is low when purchasing visible goods like apples or dining at a known restaurant. Sellers can reassure buyers through warranties, return policies, and trusted reviews.

Step-by-step explanation:

The results of the detail testing are a good example of circumstantial information. This type of information implies a certain fact but does not prove it directly. In the scenario you provided, there are no written approvals on the purchase orders, which suggests that there may be a lack of control in the approval process for inventory purchases, but it does not confirm it outright. Such evidence is related to, but not definitive of, an audit finding.

Regarding imperfect information and purchasing decisions:

• Buying apples at a roadside stand would likely have a relatively low degree of imperfect information because you can see and assess the quality of the apples directly.
• Buying dinner at the neighborhood restaurant around the corner would also have a low degree of imperfect information due to the local reputation and the ability to immediately experience the product.

To reassure a buyer faced with imperfect information, a seller might provide warranties, return policies, trusted reviews, or detailed product descriptions.