The Principle of Lower of Cost or Market and the Potential

question 70

Multiple Choice

The principle of lower of cost or market and the potential obsolescence of inventory are concerns for the audit team because of which of the following?

• A)They are uncommon and may not exist.
• B)They are a burden to the auditor in the undue amount of work caused.
• C)They are likely to occur in the last month of the year and cause cutoff problems.
• D)They are an inherent component of complexity related to valuation.

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Definitions:

Revenues

Increases in owner’s equity as a result of providing services or selling goods to customers.

Budget Performance Report

A report that summarizes actual costs, standard costs, and the differences for the units produced.

Cost Centers

Parts of an organization to which costs can be allocated, but which do not directly generate revenues.

Operating Expenses

Costs incurred during the normal functioning of a business, excluding the cost of goods sold.