Wang Foods Ltd has been operating for a number of years as a producer of canned vegetables. Wang Foods imports most of its vegetables from Thailand and Vietnam. All overseas shipments to Wang Foods are invoiced and require settlement in US dollars. Furthermore, Wang Foods is required to pay for freight and insurance costs. The insurance covers the period from the day the goods are loaded onto the ship (i.e. Wang Foods assumes ownership of the goods on the day the goods are loaded onto ships in the various Asian ports from where the produce is shipped) until the day they arrive in Wang Foods’ warehouses in Australia. All shipments arrive in Australia within a 21-day period after loading onto a ship. All overseas suppliers are settled 30 days after the date of shipment. Overseas suppliers now represent 70 per cent of accounts payable. Local and overseas suppliers are maintained in separate subsidiary ledgers within the accounting system. The audit partner has identified that accounts payable is at risk of material misstatement. Required
Wang Foods Ltd has been operating for a number of years as a producer of canned vegetables. Wang Foods imports most of its vegetables from Thailand and Vietnam. All overseas shipments to Wang Foods are invoiced and require settlement in US dollars. Furthermore, Wang Foods is required to pay for freight and insurance costs. The insurance covers the period from the day the goods are loaded onto the ship (i.e. Wang Foods assumes ownership of the goods on the day the goods are loaded onto ships in the various Asian ports from where the produce is shipped) until the day they arrive in Wang Foods’ warehouses in Australia. All shipments arrive in Australia within a 21-day period after loading onto a ship. All overseas suppliers are settled 30 days after the date of shipment.
Overseas suppliers now represent 70 per cent of accounts payable. Local and overseas suppliers are maintained in separate subsidiary ledgers within the accounting system.
The audit partner has identified that accounts payable is at risk of material misstatement.
Required
(a) Outline two key reasons why accounts payable is at risk of material misstatement.
(b) For each key reason outlined in (a), identify and explain the assertion most at risk.
(c) For each assertion at risk outlined in (b), describe one substantive test of detail that is specifically responsive to the risk of material misstatement.
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