1.3) With regards to inventory obsolescence allowance, describe substantive audit procedures with the use of computer-assisted audit techniques (CAATs) to ensure inventories obsolescence allowances are accurate, correctly valued and allocated at year end.(18 marks)

Communication skills appropriate style

INVENTORIES, INVENTORY OBSOLESCENCE ALLOWANCE AND THE USE OF A MANAGEMENT EXPERT (Required part 1) An extract of the audit workpaper A100 "Obtaining an understanding of the entity: Inventory and inventory obsolescence allowance completed during the planning stage of the audit during August 2020 is documented below: WP/A100 SSB Incorporated Prepared by: SA Client: Eco-Muhle Skincare (Pty) Ltd Date: 12/08/2020 Period: Y/E 31/07/2020 Reviewed by: Subject: Obtaining an understanding of the Date: entity: inventory and inventory obsolescence allowance 1. Eco-Muhle's inventory balance comprises raw materials, work-in-progress and finished goods. Inventories are valued at the lower of cost and net realisable value using the FIFO basis. All inventories are issued directly to customers from the warehouse in Johannesburg. 2. The year-end inventory count takes place after hours on the last day of the financial year. The company only has one count for the year. 3. Management considers inventory obsolescence each year. Inventories (finished goods) are written off if aged (last date of sale is 9 months prior to year end), damaged ctivate Windows. or the likelihood of being sold is remote. ndows WPL A100 SA Client: 12/08/2020 Period: SSB Incorporated Prepared by: Eco-Muhle Skincare (Pty) Ltd Date: Y/E 31/07/2020 Reviewed by: Obtaining an understanding of the Date: entity: inventory and inventory obsolescence allowance Subject: 4. The inventory masterfile pertaining to finished goods contains the following fields: inventory item number; inventory item description; date of last sale per item; > quantity on hand at the beginning of the financial year; year-to-date sales quantity; quantity on hand at the beginning of the financial year; manufacturing cost per unit; unit selling price at year end; and > value of inventory at the end of the financial year. Additional information: Activate Windows Go to Settings to activate Windows. During September 2020, management provided you with the following information that is relevant to the audit of inventory: Additional information: During September 2020, management provided you with the following information that is relevant to the audit of inventory: 1. Inventory obsolescence adjustment for 2020 was R55 000 (R35 000 in 2019). 2. Our audit team have attended the inventory count of finished goods and are satisfied that all necessary adjustments pertaining to the count have been performed as at 31 July 2020. However, a shipment of topical creams purchased from a foreign supplier during July 2020 was not yet cleared at the Durban Harbour and not accounted for in Eco-Muhle financial records. Invoice date Description Supplier Quantity Cost Total Item code RM101 RM102 28/07/2020 29/07/2020 Derma-coco Bio Sol Advent BioSol 500 250 $175 $350 $87 500 $87 500 $175 000 $1 Spot rate: 28/07/2020: R14.80 29/07/2020: R14.76 31/07/2020: R14.92 Activate Windows Go to Settings to activate Windows. [TURN OVER] 3. Raw materials used in the manufacturing process and work-in-progress comprise specialised chemical ingredients. Management engaged with an independent expert, Mr Ntseko, to assist in the inventory valuation at year end as management themselves do not have such expertise. Mr Ntseko is well qualified, experienced and has assisted management in valuing their inventory for a number of years. He is subject to professional standards and is in good standing with his professional body. INVENTORIES, INVENTORY OBSOLESCENCE ALLOWANCE AND THE USE OF A MANAGEMENT EXPERT (Required part 1) An extract of the audit workpaper A100 "Obtaining an understanding of the entity: Inventory and inventory obsolescence allowance completed during the planning stage of the audit during August 2020 is documented below: WP/A100 SSB Incorporated Prepared by: SA Client: Eco-Muhle Skincare (Pty) Ltd Date: 12/08/2020 Period: Y/E 31/07/2020 Reviewed by: Subject: Obtaining an understanding of the Date: entity: inventory and inventory obsolescence allowance 1. Eco-Muhle's inventory balance comprises raw materials, work-in-progress and finished goods. Inventories are valued at the lower of cost and net realisable value using the FIFO basis. All inventories are issued directly to customers from the warehouse in Johannesburg. 2. The year-end inventory count takes place after hours on the last day of the financial year. The company only has one count for the year. 3. Management considers inventory obsolescence each year. Inventories (finished goods) are written off if aged (last date of sale is 9 months prior to year end), damaged ctivate Windows. or the likelihood of being sold is remote. ndows WPL A100 SA Client: 12/08/2020 Period: SSB Incorporated Prepared by: Eco-Muhle Skincare (Pty) Ltd Date: Y/E 31/07/2020 Reviewed by: Obtaining an understanding of the Date: entity: inventory and inventory obsolescence allowance Subject: 4. The inventory masterfile pertaining to finished goods contains the following fields: inventory item number; inventory item description; date of last sale per item; > quantity on hand at the beginning of the financial year; year-to-date sales quantity; quantity on hand at the beginning of the financial year; manufacturing cost per unit; unit selling price at year end; and > value of inventory at the end of the financial year. Additional information: Activate Windows Go to Settings to activate Windows. During September 2020, management provided you with the following information that is relevant to the audit of inventory: Additional information: During September 2020, management provided you with the following information that is relevant to the audit of inventory: 1. Inventory obsolescence adjustment for 2020 was R55 000 (R35 000 in 2019). 2. Our audit team have attended the inventory count of finished goods and are satisfied that all necessary adjustments pertaining to the count have been performed as at 31 July 2020. However, a shipment of topical creams purchased from a foreign supplier during July 2020 was not yet cleared at the Durban Harbour and not accounted for in Eco-Muhle financial records. Invoice date Description Supplier Quantity Cost Total Item code RM101 RM102 28/07/2020 29/07/2020 Derma-coco Bio Sol Advent BioSol 500 250 $175 $350 $87 500 $87 500 $175 000 $1 Spot rate: 28/07/2020: R14.80 29/07/2020: R14.76 31/07/2020: R14.92 Activate Windows Go to Settings to activate Windows. [TURN OVER] 3. Raw materials used in the manufacturing process and work-in-progress comprise specialised chemical ingredients. Management engaged with an independent expert, Mr Ntseko, to assist in the inventory valuation at year end as management themselves do not have such expertise. Mr Ntseko is well qualified, experienced and has assisted management in valuing their inventory for a number of years. He is subject to professional standards and is in good standing with his professional body