answer options are:
increase or decrease
substantive testing, budgeting, analytical procedures, ratio computations, or sampling
overstatement, embezzlement, understatement, cash flow impact, or tax impact
related party, stock option, bonus, charitable donation, and rental

Transcribed Image Text:

16. Based on the above analysis, the auditors may wish to decrease diversification within the production cycle reduces audit complexity, the geographic dispersion of warehouses and sales offices increases the complexity of the inventory audit. Additionally, failure of the internal audit stafr to adequately test either transaction processing or Inventories should be cause of concern. inherent risk in most areas. Although lack of product The increase in sales revenue, and the fact that the increase was unplanned (I.e., not included in the budget), the decrease in inventory unit costs, the expanded gross profit rate, and the decline in inventory turnover suggest assessing inherent risk at 100 percent for the revenue cycle as well. These assessments should lead to additional Select confirmation, sales cutoff, and inventory auditing. The $4 million gain on disposal of plant assets should also be audited carefully for possible Select in the areas of accounts receivable Also, the Bank Two loan agreement needs to be carefully examined for proper disclosure of terms and conformity with restrictive covenants. The Select transaction with Mr. Lawton needs to be audited for possible conflict between form and substance. Finally, attention needs to be devoted to the patent infringement litigation in terms of probability of unfavorable outcome. 16. Based on the above analysis, the auditors may wish to decrease diversification within the production cycle reduces audit complexity, the geographic dispersion of warehouses and sales offices increases the complexity of the inventory audit. Additionally, failure of the internal audit stafr to adequately test either transaction processing or Inventories should be cause of concern. inherent risk in most areas. Although lack of product The increase in sales revenue, and the fact that the increase was unplanned (I.e., not included in the budget), the decrease in inventory unit costs, the expanded gross profit rate, and the decline in inventory turnover suggest assessing inherent risk at 100 percent for the revenue cycle as well. These assessments should lead to additional Select confirmation, sales cutoff, and inventory auditing. The $4 million gain on disposal of plant assets should also be audited carefully for possible Select in the areas of accounts receivable Also, the Bank Two loan agreement needs to be carefully examined for proper disclosure of terms and conformity with restrictive covenants. The Select transaction with Mr. Lawton needs to be audited for possible conflict between form and substance. Finally, attention needs to be devoted to the patent infringement litigation in terms of probability of unfavorable outcome.

Answer rating: 100% (QA)

Based on the above analysis the auditor may wish to increase inherent risk in most areas T... View the full answer