15

Sandra's auditing class is discussing inherent risk related to manufacturing entities inventory accounts. Sandra explains to her class that inherent risk is often higher for manufacturing entities and asks the class why they think this might be? Which of the following responses would be most appropriate from the class? Inherent risk is probably higher for manufacturing entities because they are having to process raw materials into finished goods. This is more complex than just selling premade inventory, so inherent risk would be higher. Inherent risk is likely to be higher for manufacturing entities because their inventory turnover cycles are much slower than in other industries. As a result, they run a much greater risk of obsolescence. Inherent risk is probably higher for manufacturing entities because of the judgment and subjectivity involved with the allocation of costs for items such as indirect materials. None of these answer choices are correct