Question

Which company will most likely have a higher assessed risk of material misstatement for inventory?

1) Large dollar value of inventory
2) Diverse inventory
3) Rare inventory
4) Specialized inventory

Answer 1

The company with diverse inventory is likely to have the highest assessed risk of material misstatement, due to complexity in managing and accounting for various items.

Step-by-step explanation:

The company with the highest assessed risk of material misstatement for inventory is likely the one with diverse inventory. This is because a diverse inventory can include a wide range of products with different turnover rates, values, and risks associated with their valuation or obsolescence. Managing and accounting for a large assortment of items can be complex and prone to errors, increasing the risk of material misstatement. On the other hand, companies with large dollar value inventory, rare inventory, or specialized inventory also face risks but these tend to be more concentrated and therefore may be easier to manage and audit compared to a diverse inventory base.