You are an audit manager at Hall & Partners and the audit of Abby Co is nearly complete. The draft financial statements currently show revenue of £70m and a profit before tax of £8.2 million for the financial year ended 30 June 20X0. You have been informed that the marketing director left Abby Co on 31 May 20X0 and discovered that a legal case for unfair dismissal has been brought against Abby Co by the marketing director. During a discussion with the Human Resources (HR) director of Abby Co, you established that the company received notice of the proposed legal claim on 2 July 20X6. The HR director told you that Abby Co's lawyers believe the maximum payout would be £200,000. However, the directors do not intend to make any adjustments or disclosures in the financial statements. Which TWO of the following factors may indicate overvaluation of inventory at Abby Co? A) A decrease in demand for Abby Co's goods, requiring a price reduction B) Increased inventory levels C) Increased inventory turnover ratio D) Inclusion of the third party inventory within Abby Co's inventory balance

You are an audit manager at Hall & Partners and the audit of Abby Co is nearly complete. The draft financial statements currently show revenue of £70m and a profit before tax of £8.2 million for the financial year ended 30 June 20X0. You have been informed that the marketing director left Abby Co on 31 May 20X0 and discovered that a legal case for unfair dismissal has been brought against Abby Co by the marketing director. During a discussion with the Human Resources (HR) director of Abby Co, you established that the company received notice of the proposed legal claim on 2 July 20X6. The HR director told you that Abby Co's lawyers believe the maximum payout would be £200,000. However, the directors do not intend to make any adjustments or disclosures in the financial statements. Which TWO of the following factors may indicate overvaluation of inventory at Abby Co? A) A decrease in demand for Abby Co's goods, requiring a price reduction B) Increased inventory levels C) Increased inventory turnover ratio D) Inclusion of the third party inventory within Abby Co's inventory balance

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

Chapter14: Completing A Quality Audit

Section: Chapter Questions

Problem 7RQSC

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