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Run Free (Pty) Ltd is a retailer specialising in stylish womans sportwear and footwear. Their inventory is purchased from both local and foreign manufacturers to ensure they have the latest fashion items available. The inventory is branded by Run Free (Pty) Ltd by imprinting their unique logo on each item in their warehouse. From there, the items are shipped to the five branches they operate throughout the province.

Run Free (Pty) Ltd relies on technology and the effective use thereof to ensure that they manage their inventory, purchases, sales and shipments to the branches. They have a logistical unit responsible to place orders, arrange shipments, track orders, manages the import procedures, delivery to their warehouse and the shipment of the items to their branches. The nature of their business requires the asset division to perform monthly inventory counts and to immediately address any adjustments or anomalies. Their finance division values the inventory at the lower of cost or net realisable value in terms of IAS 2 and their cost is determined by the Weighted Average method of valuation. Their detailed inventory records are included in their automated system reporting on the descriptions, item codes, unit cost of each item in the local currency, the selling price, the real-time quantity on hand, the date of all sales, the dates and quantities of orders placed for new items, dates and quantities of orders received as well as those dispatched to their branches

As the newly appointed external auditors of Run Free (Pty) Ltd, you are responsible for their audit of the financial statements for the year ended 31 March 2023.

Required:

3.1 Design the test of control procedures your team needs to perform at Run Free (Pty) Ltd to test the inventory. (15)

3.2 Formulate the substantive audit procedures your team needs to execute to test the

valuation of the inventory using CAATs.

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