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Question

For each independent situation below, select from the option lists provided the appropriate inherent risk factor

and the effect of the inherent risk, if any, on the company's net income. 



Susceptibility of an asset to theft: Overstatement


Estimates: Understatement


Complexity: Overstatement


Volume: Overstatement


1.Sales orders for an Internet textbook distributor have increased 100% over the last year. Additionally, the company's asset turnover ratio also doubled since the previous year.

2.SLL Co. recorded its first hedging transaction for mortgage-backed securities in 20X1. At the end of 20X1, the fair value of mortgage-backed securities had decreased significantly

3.Jeweler's Supply House, Inc., supplies silver and gold to high end jewelry designers. During 20X1, the price of gold doubled and silver prices tripled. Given that three of its major competitors went out of business last year, Jeweler's Supply House maintains a significant amount of inventory in one warehouse outside Baltimore city.   

4.Anton's Technology Sales and Repair Shop provides three-year money back warranties on all sales and repairs . During 20X1, warranty claims decreased significantly. Anton's did not reduce the warranty reserve.

Top Answer

1). Volume: Overstatement 2). Estimates:... View the full answer

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