In Obtaining an Understanding of a Manufacturing Entity's Internal Control

question 61

Multiple Choice

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would:

• A) Analyze the liquidity and turnover ratios of the inventory.
• B) Perform analytical procedures designed to identify cost variances.
• C) Review the entity's descriptions of controls over inventory.
• D) Perform test counts of inventory during the entity's physical count.

---

Definitions:

After-Tax Cost

The actual cost of an expense or investment after accounting for the effects of taxes, providing a more accurate measure of the expense's or investment's true financial impact.

Target Capital Structure

The mixture of debt, equity, and other financing sources a firm aims to hold to maximize its stock value.

Equity Firm

A company that invests in businesses, typically by buying majority ownership to control and manage the companies.

Dividend Payout

A portion of a company's earnings that is distributed to its shareholders as a return on their investment.