If most companies in the industry use FIFO inventory valuation and straight-line depreciation, and the audit client uses weighted average and double-declining balance, comparisons of client and industry data:
A) will be a meaningful highlight of the result of these differences in accounting methods.
B) may not be meaningful.
C) will enable the auditor to spot irregularities but not errors.
D) will enable the auditor to spot errors but not irregularities.

Question

Quizplus · Accepted Answer

Comparisons of client and industry data may not be meaningful because the different accounting methods used by the audit client and the industry may result in differences in financial ratios and other measures that make meaningful comparisons difficult. Additionally, the use of different accounting methods does not necessarily indicate irregularities or errors in the client's financial statements. Therefore, the auditor should consider the impact of differing accounting methods but should not rely solely on industry data for analysis.

If Most Companies in the Industry Use FIFO Inventory Valuation