Quiz 3: Analytical Procedures - Key Ratios

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5 Terms

1
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Inventory Turnover

Formula:

Cost of goods sold / average inventory

What the auditor investigates:

Slow-moving goods, excess stock, and changes in demand

2
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Days inventory on hand

Formula:

Average inventory / cost of goods sold x 365

What the auditor Investigates:

Length of time inventory remains unsold

3
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Gross profit margin

Formula:

(Revenue - Cost of goods sold) / revenue

What the auditor investigates:

Potential inventory or revenue misstatements

4
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Inventory growth

Formula:

Change in inventory / prior-year inventory

What the auditor investigates

Inventory accumulation, production changes, or cutoff errors

5
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Scrap rate

Formula:

Scrap units / production units

What the auditor investigates:

Abnormal waste, production inefficiency, or inaccurate standards.