Audit and Assurance Practice Exam

Which control method is important for managing inventory purchases?

1. A two-way match

2. A three-way match

3. Random checks

4. External audits

The correct answer is: A three-way match

The three-way match is crucial for managing inventory purchases because it involves three key documents: the purchase order, the receiving report, and the vendor invoice. This process ensures that all aspects of the transaction are in agreement before payment is approved. By comparing the purchase order (which outlines the specifics of what was ordered), the receiving report (which details what was actually received), and the vendor invoice (which indicates what the vendor is charging), organizations can confirm that they are only paying for goods that were both ordered and received in the correct quantities and at the agreed-upon prices. This method significantly reduces the risk of errors, fraud, and discrepancies, thereby enhancing the accuracy and reliability of inventory management and financial reporting. In contrast, the two-way match involves only two documents—typically the purchase order and the vendor invoice. Although it provides a level of oversight, it does not account for the actual receipt of goods, which can lead to issues if discrepancies arise in what was received versus what was invoiced. Random checks, while useful for ensuring compliance and accuracy, do not provide the comprehensive verification that a three-way match offers for all transactions. They are more of a monitoring technique rather than a robust control method. External audits focus on the overall financial health and compliance