Brenton Jones is an audit senior with a major accounting firm. He has been assigned the audit
Question:
Brenton Jones is an audit senior with a major accounting firm. He has been assigned the audit of inventories for two different audit engagements as follows:
• Big Deal Trailers Pty Ltd. This company manufactures two different models of car trailers, and maintains an inventory of spare parts for retail sale. It manufactures a standard line of steel one-tonne trailers, but will produce one-off trailers to customer specification. Inventories are relatively small, as many of the trailers are manufactured to order for service stations for hiring out to the public.
• Digger Wineries Ltd. This company operates a number of vineyards in the Barossa Valley in South Australia, and produces a broad range of table wines for local sale and export. Inventory consists of numerous varieties of bulk wine stored in large vats for ageing, bottled and cask wine of numerous varieties, packaging, grapes in storage awaiting processing, and grapes on the vine yet to be harvested.
Given the above information, which of the above two companies may be assessed by Brenton as having the greater inherent risk in the inventory segment? Give reasons for your answer.
Step by Step Answer:
Auditing Assurance Services and Ethics in Australia an Integrated Approach
ISBN: 978-1442539365
9th edition
Authors: Alvin A Arens, Peter J. Best, Greg Shailer, Brenton Fiedler