Question

While assessing the risk of material misstatement and determining the appropriate response with regard to the inventory of Advanced Computer Solutions Limited (Advanced Computer Solutions) for the 30 June 2018 audit, you become aware of the following information:
(i) The best-selling computer presentation package has been experiencing a high level of returns owing to suspected software problems
(ii) Based on closing inventory, inventory turned over an average of 5.4 times in 2017 and 3.8 times in 2018
(iii) Advanced Computer Solutions moved its inventory from a central warehouse to six new regional warehouses in March 2018
(iv) Inventory on hand at end of year represented 26 per cent of sales in 2018 and 18 per cent of sales in 2017
(v) Advanced Computer Solutions has recently won a tender to supply a large government department with various products. In order to win the tender and prevent competitors from gaining a foothold in the public sector market, Computing Solutions agreed to supply the items at 10 per cent below their cost price. The first shipment is due to be delivered to the government department in the middle of July 2018.

Answer 1

accuracy means all figures are represented in the financial statement in a true and fair manner with all the valuation of assets and liabilities.inventory assertion means change in merchandise and how inventory is being impaired .there has to be check on inventory to check out of date inventory.

procedures to mitigate the risk in relation to inventory would be to stop movement of goods during the count.there should be check on movement in and out of inventory.there should be proper record of slow moving inventory

SA 701 deals with communicating key audit matters in Independent auditors report which will give a proper understanding what and how to do.The auditor should determine, from matters communicated with the person(s) charged with governance, those matters which mandated significant attention of the auditor in executing the audit.