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in the audit of inventory at Outfitters (the client) for the financial year ending 30 June 2020,, the amount presented on the financial statement is $4,000,000. The profit after tax is $10,000,000. You are the auditor and you have determined the level of materiality for inventory to be $200,000.

Required:

a. Based on your understanding, how would the auditor have done to determine the materiality for inventory (Your answer should only explain how the auditor actually does in order to determine this amount limit to 40 words) (1 mark)

b. What does this materiality level of $200,000 mean to the auditor and the audit. Explain

c. Assuming you are checking inventory and would like to physically sight the inventory stored in the clients warehouse on the balance date (i.e. 30 June 2020). Based on the above procedure, you have detected that inventory A with an amount of $260,000 is present on the balance date, client admits that they do not include this amount on the financial statement due to an unintentional mistake made by staff members. - What type of audit procedure is used by the auditor? (1 mark) - Are there any misstatements? If so, what management assertion is violated (i.e. at risk) (2 marks)

What would you do in this situation? (limit your answer to 80 words). (4 marks)

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