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Ken Garrett.
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anu1234
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Inventory worth 10m was damaged and written down to 3m …
what is the audit risk here ?
Bank reconciliations contain unreconciled differences which are considered to be immaterial.. is there any audit risk
Ken Garrett
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What do you think for both of these? Give me your ideas.
Remember, audit risk is the risk that a material misstatement ends up in the published FS, so yo should always be thinking what could go wrong.
anu1234
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I think in the first case ,
the scrap value of 3m : as per ias 2 it should be written down to NRV which might not have been done leading to overstatement of inventory
Unreconciled differences , even though immaterial will lead to overstatement of bank balance ?
Ken Garrett
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Correct, but expand the problems: Have we identified all the damaged inventory? How do we know that 3M is its NRV? Has it in fact been written down in the FS (the question implies it has been)? Overstatement of closing inventory would overstate profits.
Bank reconciliations should always work to the exact cent. There is no logical reason why they should not. Although the differences are said to be immaterial, the danger is that there could be an error of, say $1,000,000 on way and another of $1,000,001 the other. Overall cash is out by only $1 but there could be material errors in expenses and receipt recording.
You cannot tell from the information whether the cash is overstated or understated.
anu1234
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