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Observation 2 - Year end inventory count Company B conducted the year-end inventory count on...

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Accounting

Observation 2 - Year end inventory count

Company B conducted the year-end inventory count on 31 December 2020, your audit team noticed that several workers were loading up some goods into a truck. Upon query, the warehouse manager explained that these relate to urgent last-minute purchase by a major customer that must be shipped out immediately. Your team also noted a particular section of inventory located at the west wing of the warehouse were mouldy and discoloured.

Analyse the information in Observation 2 and answer the questions below with respect to the observation of mouldy and discoloured inventory during the year-end inventory count:

(i) Discuss one (1) audit procedure that would have resulted in this observation. Relate one (1) financial statement assertion at the highest risk of misstatement. (ii) Analyse one (1) activity control that Company B should have implemented to address the risk of misstatement. (iii) Explain one (1) substantive procedure to be performed following the observation. (iv) Relate one (1) audit exception that may be identified by performing that substantive procedure. (20 marks)

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