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in a sscenario it is given murrays company largest revenue generating product ergometer takes up to one week to manufacture. murray company refurbished the assembly line for the ergometers during the year . Murray co uses a third party warehouse provider to store the manufactured ergometers and approximately one quarter of the other equipment.In this question we are asked to identify the audit risk and explain the auditors response to each risk.
the audit risk given is that ergometers take up one week to manufacture.there is likely to be a material work in progress inventory balance at the year end determining the value and quantity of WIP is complex.there is a risk of misstatement of WIP inventoryi am confused in the risk given . manufacturing of ergometers is completed after one week so how come there is material WIP balance at year end.WIP is when the product is under process of production… kindly explain
You can’t be sure from the question (at least not from the information you have provided) unless you are supplied with information about the value of the inventory, the value of the company’s assets etc to make a judgement on materiality (eg guidance is typically 1 – 2% total assets).
The week’s worth of WIP might be material – it’s certainly important to be aware that it might be and to investigate it further.
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