1. FINANCIAL STATEMENT ASSERTIONS

Listed below are potential misstatements or other issues that impact on the accounting for inventorythat audit procedures have detected during an audit.

(i)Some inventory items, which have recently been purchased and paid for from an overseas supplier, are still in transit at balance date and have been omitted from the stocktake.

(ii)No sales have occurred in relation to two of the entity's product lines in the last two months before balance date.

(iii)A material amount of inventory, which is held on site and is to be sold on behalf of a third party, was included in the stocktake figures at balance date.

(iv)Some inventory items that were included in the stocktake figures at balance date, fell and broke immediately after being counted (i.e., on the same day) so were thrown out in the rubbish.

(v)The value of inventory items are determined using the 'last-in-first-out' method (LIFO) rather than 'first-in-first-out' (FIFO) or 'weighted average cost' (WAC) methods.

REQUIRED

a)Briefly explain the role of management's financial statement assertions in the audit of financial statements.

b)For each of the five misstatements above (i.e., i. to v.), identify the specific financial statement assertioninvolved relating to the inventory accountin the balance sheet.