A company frequently sells products at a price below inventory cost. Essential controls in the risk assessment process would include:
A) adequate controls that address the risk of overstating inventory.
B) adequate controls that address the risk of not including a purchased item in inventory.
C) adequate controls that address the risk of understatement of inventory.
D) adequate controls that address the risk of overstatement of cost of goods sold.

Question

Quizplus · Accepted Answer

Adequate controls that address the risk of overstating inventory are essential because selling products below inventory cost could lead to an overstatement of inventory values on the balance sheet, which would misrepresent the company's financial position.

A Company Frequently Sells Products at a Price Below Inventory