Which one of the following substantive analytical procedures would be most useful in alerting the auditor to the possibility inventory and cost of goods sold being overstated or understated?
A) Compare extended inventory value with that of previous years.
B) Compare unit costs of inventory with previous years.
C) Compare inventory turnover ratio with previous years.
D) Compare current year manufacturing costs with previous years.

Question

Quizplus · Accepted Answer

Comparing inventory turnover ratio with previous years can reveal if inventory is being sold too slowly or too quickly, which can indicate if inventory and cost of goods sold are being overstated or understated. A slower inventory turnover ratio may suggest that inventory is being overvalued, while a faster turnover ratio may indicate that inventory is being undervalued. The other options may also provide useful information, but are not as directly relevant to identifying potential inventory and cost of goods sold misstatements.

Which One of the Following Substantive Analytical Procedures Would Be