Which of the following is true regarding an auditor's assessment of management estimates for calculations related to inventory valuation in the land development and home building industry?
A) Greater uncertainty exists regarding estimates of future cash flows when development and construction are still in the early stages.
B) Since prospective buyers can cancel the contracts, management estimates expected cancellations using current engineering specifications.
C) If an auditor assessed the company's process and underlying assumptions in a prior period, the assessment does not need to be updated for subsequent audits unless there is a change in the underlying assumptions.
D) Auditors typically engage a specialist to perform detailed calculations of discounted cash flows expected from inventory.

Question

Quizplus · Accepted Answer

The early stages of development and construction can lead to greater uncertainty in estimating future cash flows, which may affect inventory valuation. Option B is incorrect as it refers specifically to prospective buyer cancellations and does not address the issue of inventory valuation. Option C is also incorrect as the assessment of management estimates should be performed in each audit cycle to ensure that they are still valid. Option D may not always be necessary as it depends on the circumstances and the auditor's professional judgement.

Which of the Following Is True Regarding an Auditor's Assessment