1. Explain how the nature of a substantive test could affect the decisions about when and how much substantive testing is performed. How do these decisions relate to the overall risk assessment for the item being tested?
2. When is it appropriate to use roll-forward procedures?
3. Using the inventory trial balance as an example, explain different techniques for selecting a sample of items for testing. What are the advantages and disadvantages of each technique?
4. North West Paper Inc. (North West) provides cardboard, paper, and plastic packaging materials to a large number of manufacturers and distributors in all states. The cardboard and paper division is a well-established business, but North West has been providing plastic products only since its takeover of Plastic Products Inc. 18 months ago. The takeover doubled North West's revenue and caused changes in its management structure, adding another two divisional managers. These new divisional managers are in charge of plastic product sales to different areas of the country, Plastic (Eastern) and Plastic (Western), and they join the Paper (Eastern) and Paper (Western) division managers in reporting directly to the CEO. All internal operating reports are now structured along the four divisional reporting lines, although external financial statements continue to be produced for the whole business. All purchasing and billing systems are fully integrated, although it is possible to extract data along divisional lines, and by state (as before). North West purchases bulk supplies of raw plastic and paper and makes boxes, rolls, and sheets of these materials to fill customer orders. Production processes in the paper divisions have not changed, and North West has made minimal changes to the production processes used by Plastic Products Inc.

4a. Identify the inherent risks at the financial statement level caused by the takeover of Plastic Products Inc. What procedures could the auditors take to respond to risk at the financial statement level?

4b. Discuss the factors that would increase or decrease the reliability of data used in substantive analytical procedures at North West.

5. The following items are documented in the working papers:

1.		A sales transaction is included in the year ended December 2022, but evidence from the cutoff procedure suggests the sale should be dated January 1, 2023 ($1,250,000).
2.		At December 31, 2021, the balance of the Liability for Warranty Claims account was $100,000 (credit balance). During 2022, $150,000 of warranty claims was processed. Inspection of correspondence suggests that an additional $200,000 in warranty claims could result from ongoing disputes with customers. No adjustment for these claims has been made. Management has booked a warranty liability accrual at the end of December 2022 of $120,000.
3.		Restructuring expenses related to reorganization of head office administration were incorrectly charged to rental expenses ($578,920).
4.		No expense for impairment of assets has been made by management. A drought-induced recession has adversely impacted property values in regional cities where seven branch offices are located (head office and two branch offices are located in the capital city). Total land and buildings in the trial balance is $5,500,000.

Evaluate each item and explain whether it is a factual misstatement or a judgmental misstatement. Which accounts would be affected, and how, if an adjustment is made for each item?