Final answer:
Auditors use the inventory turnover ratio to assess inventory management efficiency, and it can provide insights into potential inventory obsolescence.
Step-by-step explanation:
Auditors use the inventory turnover ratio to assess the efficiency of a company's inventory management. This ratio measures how quickly a company sells its inventory and is calculated by dividing the cost of goods sold by the average inventory.
While this ratio is primarily used to evaluate inventory management, it can also provide insights into potential inventory obsolescence. If the inventory turnover ratio is declining over time, it may indicate that the company is struggling to sell its inventory, which could lead to obsolescence.
For example, if a company in the technology industry has a decreasing inventory turnover ratio, it may suggest that the company's products are becoming outdated, making it difficult to sell the existing inventory.