Audit and Assurance Practice Exam

Which of the following is an example of fraud in the acquisition and payment cycle?

1. Theft of inventory by an employee

2. Accidental double payment to a supplier

3. Overstating the existing inventory to improve financial ratios

4. Simply misplacing the purchase records

The correct answer is: Theft of inventory by an employee

The example of fraud in the acquisition and payment cycle pertains to activities that involve intentional deceit or wrongdoing for the benefit of the perpetrator and usually result in a financial loss to the organization. Theft of inventory by an employee is a direct act of fraud as it involves the deliberate taking of company assets for personal gain. This act not only reduces the physical assets of the company but is carried out with the intent to deceive, making it a clear example of fraudulent behavior within the acquisition and payment cycle. In contrast, accidental double payment to a supplier represents an error rather than a fraudulent act, as it does not involve intent to deceive. Overstating existing inventory to improve financial ratios is deceitful, but it falls more into financial reporting fraud rather than directly within the acquisition and payment cycle context. Simply misplacing purchase records reflects a lack of organization and control rather than fraud. Therefore, theft of inventory stands out as a clear and intentional act of fraud in this context.