BU547 Lecture Notes - Lecture 9: Inventory Turnover, Audit Risk, Crazy Eddie
Document Summary
Abr = cbr + ar (ir x cr) Cbr is considered a medium-high because despite all factors identified above, the business appeared to be doing quite well. Control risk: potential for control override from aggressive perspective, controls there but does management even care. Integrity of management, how are they handling controls: executives changing constantly not enough experience to put proper controls. Cr is considered high due to poor control environment and lack of documentation. Inventory turnover decreased during 1987 and went from 4. 2 to 3. 2 and days increased from 80 to 112 days in inventory could be indication of inventory valuation problems and should be considered carefully by the auditors. Accounts payable: should be increasing as well because you are purchasing payables, would expect a change and however inventory increase by almost m and ap decreased by close to m should be a red flag and investigated further.
