While Auditing a Client's Inventory Processes, an Auditor Computes the Gross

question 14

Multiple Choice

While auditing a client's inventory processes, an auditor computes the gross profit margin ratio and compares it to prior years and budgeted amounts. If the result indicates that the gross profit margin has increased since the prior year and exceeds the budget, it is likely that:

• A) ending inventory is overstated and cost of goods sold is understated.
• B) both inventory and cost of goods sold is overstated.
• C) both inventory and cost of goods sold is understated.
• D) ending inventory is understated and cost of goods sold is overstated.

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Definitions:

Defensive Self-Esteem

A psychological condition where an individual's self-esteem is formed from defending oneself against criticisms, leading to fragile self-confidence.

Boast

To speak with excessive pride and self-satisfaction about one's achievements, possessions, or abilities.

Criticizes

The act of expressing disapproval or finding faults in something or someone, often with the intention of suggesting possible improvements.

Factor Analysis

A statistical method used to identify underlying variables, or factors, that explain the pattern of correlations among multiple observed measures.