Question

Circumstances prevent you from being able to observe the counting of inventory at Brentwood Industries. The inventory amount is material in relation to Brentwood​ Industries' financial statements.​ But, you were able to perform alternative procedures to support the existence and valuation of the inventory at​ year-end.

a. State the condition (either change in accounting principle, failure to follow GAAP, none, reporting involving other auditors, or scope of the audit has been restricted)

b. State the materiality level (either Material, immaterial, highly material, material or highly material, or not applicable)

c. List any additional information needed (either amount of loss, auditor's preliminary judgement, client explanation in a memo, or the size of the misstatement

Answer 1

SOLUTION :

a. The reason or condition for the inventory not allowed or able to be counted will be because of the scope of audit has been restricted. so the inventory count was not allowed in the first place.

b.  well the materiality level in this situation is immaterial in nature.

As The higher the audit risk, the lower the materiality will be set. The lower the audit risk, the higher the materiality will be set. ... This means that, even if a misstatement is not material in "Dollar" (or other denomination) terms, it may still be material because of its nature.The materiality principle states that an accounting standard can be ignored if the net impact of doing so has such a small impact on the financial statements that a reader of the financial statements would not be misled.

Since the inventory has been taken into account and with no risk involved.

c.  The additional information needed in this case will be the auditors preliminary judgement.

As the inventory count was not been done in a procedure required and instead was done by an alternative procedure to support the existence and valuation of inventory at the year end it is important and vital to have an additional information of the auditors preliminary judgement in this case.

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