Question -
You have been assigned to the audit of inventory at ABC Ltd (ABC), a distributor of hardware to retailers throughout Australia. While planning for the audit, you have obtained the following information: ABC has 100 warehouses located throughout Australia. Warehouses are used on a short-term basis depending on regional demand. The marketing manager has indicated that the hardware market is highly competitive and the ability to deliver product quickly is essential. The financial controller was not made aware of six warehouses when conducting inventory counts and only found after the balance date. This resulted in the inventory at these warehouses not being counted. The inventory omitted comprised approximately 4 per cent of total inventory. ABC lacks a timely system for recording the receipt of inventory from suppliers. This has led to significant discrepancies between the warehouse department (housing the inventory) and the purchases department. Inventory is often moved between warehouses in order to cater for stronger demand in particular areas owing to seasonal fluctuations.
Required:
(a) Describe four problems that may occur in accounting for inventory.
(b) Identify the financial report assertions for the audit of inventory at ABC that you believe would be assessed as high risk. Provide reasons for your choice.
(c) Identify whether any accounts other than inventory (asset) are impacted by the information provided in the situations.