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AUDITING - ACC3510 – SEMESTER 1, 2013

SEMINAR 9 - PROBLEM QUESTIONS

PROBLEM 9.1

While assessing the risk of material misstatement and determining the appropriate response with regard to the inventory of Ace Computers Ltd (Ace) for the year ended 30 June 2011 audit, you become aware of the following information:

1. The best-selling computer presentation package has been experiencing a high level of returns owing to suspected software problems.

2. Based on closing inventory, inventory turned over an average of 4.33 times in 2009 and 3.97 in 2011.

3. Ace moved its inventory from a central warehouse to five new regional warehouses in March 2011.

4. Inventory represented 18% of sales in 2011 and 17% of sales in 2010.

5. Ace 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, Ace agreed to supply the items at 10% below their cost price. The products are expected to be delivered to Ace prior to year end, with the first shipment due to be delivered to the government department in the middle of July 2011.

Required:

a) Considering the information above, determine the two main assertions at risk in relation to inventory. Briefly, explain your answer.

b) Recommend two substantive audit procedures you could perform in response to each risk identified above.

PROBLEM 9.2

Beach Resorts Pty Ltd (Beach) operates a seaside hotel providing accommodation, bar and restaurant facilities for tourists. Causal and part-time wages are a major expense item, particularly during summer, when up to an additional 100 staff are employed.

In order to keep track of casual and part-time wages, Beach’s operations manager prepares a weekly roster showing:

• Employee name
• Position of employment (eg: kitchen hand)
• Hourly rate
• Days and hours...
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