Auditors Sometimes Use Comparisons of Ratios as Audit Evidence

question 3

Multiple Choice

Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

• A)Unrecorded purchases.
• B)Unrecorded sales.
• C)Merchandise purchases being charged to selling and general expense.
• D)Fictitious sales.

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Definitions:

Introductory Stage

The initial phase in the product life cycle where a new product is launched into the market.

Free Drinks

Complimentary beverages offered by establishments, events, or organizations as a form of hospitality or promotion.

Premiums

Money paid for insurance coverage.

Rebates

A partial refund to someone who has paid too much for tax, rent, or a utility. In marketing, it often refers to a refund given for the purchase of a product.