When inventory items have price movements in excess of 50% (considered material), how does this affect the risk of material misstatement (how does it increase inherent or control risk?) and what accounts and management assertions are most likely influenced by this? (Auditing)

When inventory items have price movements in excess of 50% (considered material), how does this affect the risk of material misstatement (how does it increase inherent or control risk?) and what accounts and management assertions are most likely influenced by this? (Auditing)

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter8: Specialized Audit Tools: Attributes Sampling, Monetary Unit Sampling, And Data Analytics Tools

Section: Chapter Questions

Problem 22RQSC

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Definition Definition Process by which financial information is analyzed, interpreted, and communicated to managers to support the achievement of an organization's goals. The main objective of managerial accounting is to maximize profits and minimize losses.

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Which of the following timing of inventory count is the best based on the auditor’s point of view when the control risk is assessed at maximum and when there is a high inherent risk for the client? A. Inventory count just after year-endB. Inventory count at year-endC. Inventory count just before year-endD. All of the following are equal and the auditor can choose oneE. Inventory count must be done before year-end, at year-end and after year-end
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1. Please provide the type of audit procedures that was performed in the following actions or procedures: Inquire of management whether they have properly identified obsolete inventory as at the balance sheet date ___________ Re-compute the unit sales price multiplied by the number of units for a sample of duplicate sales invoices, and compare the totals to the client’s calculations _____________________
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As part of your audit of a client's inventory balance, you created an expectation of what should be the inventory balance by using the gross profit method. The difference between your expectation using the gross profit method of estimating inventory as against the client reported balance is above audit materiality level for audit of inventory. What should you do next? a. Discuss with the management the implication of the significant difference and propose an adjusting journal entry accordingly.b. Extend audit procedures by doing further analytical procedures on the inventory balance.c. Extend audit procedures by doing test of details of the account balance.d. Issue a qualified opinion on the basis of a material misstatement in the client's inventory.e. None of the above
How might an auditor use a client’s sales forecast for general familiarity with the production cycle or for evaluation of slow-moving inventory?
Why do auditors consider inventory errors pervasive?
Assume that you are auditing the inventory of Husky Manufacturing Company for the year ended December 31, 2015, and you are using MUS. The book value is $8,124,998.66. The risk of incorrect acceptance is 10% (90% confidence level). The tolerable misstatement is $275,000, and expected misstatement is $80,000, so the ratio of expected misstatement to tolerable misstatement is 29%. The ratio of tolerable misstatement to the population book value is 4.3%. Calculate the sample size and the sampling interval. Calculate the total estimated misstatement assuming the following misstatements were found in the sample: Book value Audit value $41,906.45 $36,906.45 $335,643.28 $333,643.28 What conclusion do you reach based upon your calculation?