(a) Explain the terms 'deviation' and 'misstatement'. (2 marks) (b) Define THREE financial statement assertions relevant to transactions and events. (3 marks)

It is 1 July 20X5. You are an audit manager in Hoka & Co responsible for the audit of Home Co, a listed company which manufactures large, bespoke items of furniture. Its year end was 30 April 20X5 and the final audit of Home Co is due to commence next week. Draft financial statements show profit before tax of $850,000 and total assets of $9 million. The following matters have been brought to your attention: New accounting system In January 20X5, Home Co introduced a new accounting software package which has more functionality for contract accounting. The old and new systems were run in parallel for one month before the old system was shut down. The internal audit function performed testing during the transfer of the data from the old to the new system. Contract liabilities Furniture takes between one and three months to manufacture depending on the size of the item. Customers are required to pay a 40% deposit when placing the order which covers the design process and materials. The deposit is recognised as a contract liability until the performance obligation is fulfilled. The remaining 60% of the transaction price is received when the customer accepts the goods. Required: (c) Describe the audit procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Home Co's new accounting system. (6 marks) (d) Describe substantive audit procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Home Co's contract liabilities. (4 marks) (e ) Describe substantive procedures the auditor should perform at the final audit to obtain sufficient and appropriate audit evidence over the year-end inventory balance. (5 marks)