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1. usually for audit risk and risk of material misstatement, we are required to state the correct financial reporting rules and apply it so for example
Number 1: “inventory must be valued at lower of cost or NRV and if there were allegations with regard to that particular products, there are risk that NRV and can be lower than cost. If not inventory can be overstated if those inventory are not expensed to profit or loss account”
However, can we assume examiner knows about the the financial reporting rules ? like mentioned below
Number 2: “NRV of the inventory can be lower than the cost due to allegation of the products therefore inventory can be overstated if those inventory are not expensed to profit or loss account”
Can i state as number 2 instead of number 1 ? i know that P7 (AAA) is all about application marks and i think it can be quite lengthy if we were to write the specific FR requirements and apply it in order to gain maximum marks by writing all audit risks. Therefore i can just apply scenario into FR requirements and write it into a single sentence ? and will there be specific mark differences whether i write number 1 or 2 ?
For risks, 2 is ok. So, if you were looking at R&D, the risk is that expenditure has not been correctly capitalised or expensed.
If you are asked for an audit response then you must look at the accounting standard in detail as each detail must be complied with. So for inventory you would be verifying that some inventory was correctly valued at the lower of cost and NRV. For R&D you have to verify that the project will be technically successful, can be completed etc.
hi sorry i didn’t specify in detail, i’m just talking about the audit risk or risk of mm in question 1. Does it mean that whether i write number 1 or 2 response, i’ll still get the same marks ?
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