ABC Jewellery Limited is a retail shop selling jewelleries and diamonds in Tsim Sha Tsui.Diamond values are affected by 4Cs: clarity, color, cut and carat weight.Due to Covid-19, diamond prices have dropped significantly.

Most customers pay by credit card.However, the shop allows some VIP customers to pay by cash.These VIP customers are some wealthy travellers who would go back to the shop every time they visit Hong Kong.

To show trust to these VIP customers, the shop would not count their cash in front of them.Chan, one of the shop staff, pocketed some bank notes from these VIP customers and alleged the shortfall was purely attributed to the customers.Chan did that because his mother was sick and needed money for surgery, and Chan thought that he would return the money to the shop as soon as possible.

Required:

(a)Analyse and explain the inherent risk of material misstatement of the company's inventories in connection with the relevant assertions.

(4 marks)

(b)Analyse and explain the inherent risk of material misstatement of the company's sales transactions in connection with the relevant assertions.

(4 marks)

(c)Determine FOUR substantive audit procedures to address the risks associated with the relevant assertions of the company's bank and cash balance.

(4 marks)