Ratio and Trend Analysis When an auditor discovers a significant change in a ratio when compared with the prior year's ratio, the auditor considers the possible reasons for the change.
Required:
Give the possible reasons for the following significant changes in ratios:
A. The rate of inventory turnover (ratio of cost of sales to average inventory) has decreased from the prior year's rate.
B. The number of days' sales in receivables (ratio of average of daily accounts receivable to sales) has increased over the prior year.