Which of the Following Is not a Reason for the Special

question 38

Multiple Choice

Which of the following is not a reason for the special significance attached by the auditors to the verification of inventories?

• A)The determination of inventory valuation directly affects net income.
• B)The existence of inventories is inherently difficult to substantiate.
• C)Special valuation problems often exist for inventories.
• D)Inventories are often the largest current asset of an enterprise.

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Definitions:

Priority of Repayment

A hierarchy or order in which obligations and debts are to be paid, particularly relevant in bankruptcies and when liquidating assets.

Bond Indenture

A legal document specifying the terms and conditions under which a bond is issued.

Sinking Fund

A Sinking Fund is a fund established by an issuer of a bond to repay the principal amount of the bond at maturity, usually by setting aside funds over a period of time.

Protective Covenants

Clauses in a bond agreement that impose certain restrictions on the issuer to protect bondholders' interests, such as maintaining minimum financial ratios or limiting further debt issuance.