Question

Which of the following is an example of an analytical calculation that an auditor would use in the audit of inventory?

Number of day’s sales in accounts receivable compared to industry averages

Inventory turnover for the past five years

Salaries of marketing personnel as a percent of total inventory.

Current ratio for the past three years.

The company is only marginally able to meet its debt covenant requirements.  Which part of the fraud triangle would this be classified under?

		Incentives/pressure
		Opportunities
		Attitudes/rationalization

Answer 1

Ans is

Inventory turnover for the past five years

Reason:- It can help in establishing the relationship between inventory and cost of goods sold. So if we subtract sales with cost of goods sold, we also get inventory as balance.

Ans 2

Attitudes/rationalization

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