ACCA F8 - Audit and Assurance Revision Kit 2016

77 Which TWO of the following statements are true regarding the auditor's attendance at the inventory
count?
It is the auditor's responsibility to organise the inventory count.
The auditor observes client staff to determine whether inventory count procedures are being
followed.
The auditor reviews procedures for identifying damaged, obsolete and slow-moving inventory.
If the results of the auditors' test counts are not satisfactory, the auditor should insist that the
inventory is recounted.
78 Audit tests have confirmed that the inventory counts are accurate and there are no purchases or sales cut-off
errors.
One of the company's factories was closed on 30 April 20X7. The plant and equipment and inventories were
to be sold. By the time the audit work commenced in June 20X7, most of the inventory had been sold.
You have instructed the audit junior to evaluate the valuation of the inventory related to the closing factory at
the year end. The audit junior has sent you a list of planned audit procedures.
Which of the audit procedures below are appropriate in auditing the valuation assertion for the
inventory? [Select as many responses as you feel is appropriate.)
Agree the selling prices of inventory sold since the year-end to sales invoices and the cash book.
Assess the reasonableness of management’s point estimates of realisable value of inventory that has
not yet been sold by reviewing sales before the year-end, comparing the values with inventory that
has been sold since the year-end and considering offers made which have not yet been finalised.
For a sample of inventory sold just before and just after the year end, match dates of sales
invoices/date posted to ledgers with date on related goods despatched notes
For unsold inventory, assess reasonableness of provisions for selling expenses by comparison of
selling expenses with inventory sold.
79 On 17 March 20X7, Newthorpe’s managing director was dismissed for gross misconduct. It was decided
that the managing director's salary should stop from that date, and that no redundancy or compensation
payments should be made.
The managing director has claimed unfair dismissal and is taking legal action against the company to obtain
compensation for loss of his employment. The managing director says he has a service contract with the
company which would entitle him to two years' salary at the date of dismissal. The directors believe that
there is a 35% chance of the managing director succeeding in his claim.
The financial statements for the year ended 30 April 20X7 record the resignation of the director. However,
they do not mention his dismissal and no provision for any damages has been included in the financial
statements.
40 Questions