Assume that you have completed your procedures on the audit of Warren Corporation and have found the following audit issues.
a. Indicate the account balance financial statement assertion that is likely to be most impacted by each of the issues.
b. Indicate whether the impact of the issue would be understatement or overstatement of the account.
1. It was discovered that a number of the items on hand and counted in the inventory were on consignment.
2. In performing a price test of inventory items, you found a number of items priced below cost.
3. It appears that the selling price of certain of the company's products has declined significantly.
4. During the physical inventory it was noted that a number of inventory items were damaged.
5. Completeness Existencee Rights and Obligations Valuation and Allocation Inventory items were stored in three different warehouses and the auditors fear that some items might be in an undisclosed fourth warehouse.
6. Some inventory items owned by the company were in transit during the physical inventory.

Question

24-11-2021
Business

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Assume that you have completed your procedures on the audit of Warren Corporation and have found the following audit issues.
a. Indicate the account balance financial statement assertion that is likely to be most impacted by each of the issues.
b. Indicate whether the impact of the issue would be understatement or overstatement of the account.
1. It was discovered that a number of the items on hand and counted in the inventory were on consignment.
2. In performing a price test of inventory items, you found a number of items priced below cost.
3. It appears that the selling price of certain of the company's products has declined significantly.
4. During the physical inventory it was noted that a number of inventory items were damaged.
5. Completeness Existencee Rights and Obligations Valuation and Allocation Inventory items were stored in three different warehouses and the auditors fear that some items might be in an undisclosed fourth warehouse.
6. Some inventory items owned by the company were in transit during the physical inventory.

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anthougo anthougo · Answer 1 · 2021-11-29T18:07:45+01:00

a. The indication of the account balance financial statement assertions of the following issues are as follows:

Issues Financial Statement Assertions

1. Consignment Inventory Existence, Completeness, Rights and Obligations

2. Items priced below cost Existence, Accuracy and Valuation

3. Significant decline in selling prices = Accuracy and Valuation

4. Damaged inventory Existence, Accuracy and Valuation

5. Undisclosed fourth warehouse = Existence, Completeness, Accuracy and Valuation

6. Inventory in-transit Existence, Accuracy and Valuation, completion, Rights and Obligations

b. Issues Impacts

1. Consignment Inventory Overstatement

2. Items priced below cost Understatement

3. Significant decline in selling prices Overstatement

4. Damaged inventory Overstatement

5. Undisclosed fourth warehouse Overstatement

6. Inventory in-transit Understatement

Thus, the financial statement assertions that the auditor must verify are existence, completeness, rights and obligations, accuracy and valuation, and presentation and disclosure.

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