The auditor has noted in the audit of inventory for a manufacturing company. He has found...

 

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The auditor has noted in the audit of inventory for a manufacturing company. He has found that the client recorded sales immediately for consignment inventory sent to consignee. Raw materials received from the supplier were not checked and the data are entered into the inventory system according to the purchase orders. A new supplier has been found to be sending the wrong raw materials to the company. Administration and sales salaries were counted as overhead and allocated to work-in-process inventory during the year. a) Based on the auditor's findings, explain three misstatements that may arise and the corresponding management assertions regarding account balance that may be violated. (12 marks) b) In view of the possible misstatements you identified in (a), the auditor has used the following three types of evidence in the audit of inventory: (1) Physical examination (2) Confirmation (3) Recalculation (i) For each misstatement you identified in (a), determine which type of evidence can be used to detect it and describe a possible audit procedure. marks) (ii) State the relevant general audit objective and specific audit objective of the auditor for each procedure. marks) (ii) Evaluate the reliability of each evidence provided by the procedures you have suggested. How may the reliability of evidence (1) and (3) be further enhanced? (9 (9 (10 marks) The auditor has noted in the audit of inventory for a manufacturing company. He has found that the client recorded sales immediately for consignment inventory sent to consignee. Raw materials received from the supplier were not checked and the data are entered into the inventory system according to the purchase orders. A new supplier has been found to be sending the wrong raw materials to the company. Administration and sales salaries were counted as overhead and allocated to work-in-process inventory during the year. a) Based on the auditor's findings, explain three misstatements that may arise and the corresponding management assertions regarding account balance that may be violated. (12 marks) b) In view of the possible misstatements you identified in (a), the auditor has used the following three types of evidence in the audit of inventory: (1) Physical examination (2) Confirmation (3) Recalculation (i) For each misstatement you identified in (a), determine which type of evidence can be used to detect it and describe a possible audit procedure. marks) (ii) State the relevant general audit objective and specific audit objective of the auditor for each procedure. marks) (ii) Evaluate the reliability of each evidence provided by the procedures you have suggested. How may the reliability of evidence (1) and (3) be further enhanced? (9 (9 (10 marks)

Answer rating: 100% (QA)

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