I have difficulty in understanding the audit area of the inventories. In the textbook, there is a case where the inventory is identified as high risk for existence of warehouse inventory, cut-off for transfer from factory to warehouse and sales cut-off. Does this refer to the existence assertion of inventories? If yes, what risk response procedures should be there to address this?
And for the other assertions, they are classified as low risk because factory inventories are routine and well controlled and there are no major concerns about concerns about determining cost and NRV. Does this refer to the completeness and valuation assertions? What does ‘routine inventories” mean? And if the inventories are well controlled, why is the existence of the warehouse identified as a high risk?
Could you kindly give me some help in this? Thanks.
Ist para: existence and cut-off assertions. INcrease cut-off tests and count inventory.
I think routine inventories are those used habitually in the business so not odd or in unusual quantities. Few valuations problems.
I think a distinction is being made between inventories in the factory and those in the warehouse. Factory are well-controlled, warehouse inventories are not.
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