Which of the following is an accurate statement regarding inventory and risk?
A) Inventory with a high business risk includes products with potential obsolescence.
B) Auditors often have a greater concern for misstatements when inventory is stored in one warehouse.
C) Inherent risk is generally set at low for manufacturing companies.
D) Performance materiality for inventory is determined before assessing client business risk.

Question

Quizplus · Accepted Answer

Inventory with potential obsolescence carries a higher risk for businesses, as it may result in write-downs or write-offs.

Answer: B
 Concentration of inventory in one location increases the risk of losses due to events such as theft, fire, or natural disasters, making auditors more concerned about misstatements.

Answer: D
 Performance materiality for inventory is typically determined after the auditor assesses client business risk and inherent risk, as these factors affect the materiality threshold.

Therefore, the accurate statements regarding inventory and risk are A and B only.

Which of the Following Is an Accurate Statement Regarding Inventory