ACCA F8 - Audit and Assurance Revision Kit 2016

(d)
diamond industry which the firm has it would seem appropriate to use an expert. This need is
increased by the specialised nature of the client's business.
The competence of the expert
The expert should be a member of a relevant professional body. The auditor should also consider the
individual's experience and reputation in his field.
The objectivity of the expert
The opinion of UJ could be clouded if for example, if they were related in some manner to Rocks
Forever. This could be a personal relationship or one of financial dependence.
The scope of the expert's work
If the auditor is to rely on this evidence it must be relevant to the audit of inventory. In this case UJ is
considering issues which will impact on the valuation of inventory. This is of great importance to the
auditor and is therefore relevant.
Evaluation of the work performed
The auditor will need to assess the quality of the work performed by the expert. The auditor will
consider the following:
– Source data used
– Assumptions and methods used and their consistency with previous years
– The consistency of the results of UJ's work with other audit evidence taking into account
DeCe's overall knowledge of the business.
In spite of the fact that the auditor's expertise is limited in this field DeCe may test the data used by
UJ. For example comparative price information may be available from other shops or industry
sources.
Inventory valuation: audit procedures
The key principle is that inventory should be valued at the lower of cost and net realisable value.
Cost
For a sample of items agree the cost price to the original purchase invoice. Care should be taken to ensure
that the invoice relates specifically to the item in question.
Net realisable value
Review the report produced by UJ for any indication that items are fake. (This is unlikely to be the case but
should be confirmed.)
For a sample of items sold after the year end verify that the sales price exceeds cost. Where this is not the
case the item should be written down to its net realisable value.
Confirm that items valued by the valuer have been included in the inventory total at this valuation. If there
are discrepancies the inventory balance should be revised to include UJ's valuation.
Obtain a schedule of the ageing of inventory. For items identified as slow moving discuss with management
the need to make an allowance.
99 Bush-Baby Hotels
Text reference. Chapters 5, 8, 10, 11 and 12. Top tips. Part (a) is knowledge-based but make sure that you
adequately describe the procedures and examples required. This part of the question would best be answered using
a columnar format. Parts (b), (c) and (d) are more challenging and you need to make sure your answers are
relevant to the scenario in the question – think about the type of industry that Bush-Baby Hotels operates in and
tailor your answer accordingly.
Easy marks. Part (a) offers easy marks – you can score ten marks here as long as your answer is sufficiently
detailed. Vague example audit procedures will not score full marks.
Answers 163