Case study 9 You are the auditor of Bears World, a limited liability company which manufactures and sells small cuddly toys by mail order. The company is managed by Mr Kyto and two assistants. Mr Kyto authorises important transactions such as wages and large orders, one assistant maintains the payables ledger and orders inventory and pays suppliers, and the other assistant receives customer orders and despatches cuddly toys. Due to other business commitments Mr Kyto only visits the office once per week. At any time, about 100 different types of cuddly toys are available for sale. All sales are made cash with order, there are no receivables. Customers pay using credit cards and occasionally by sending cash. Turnover is over $5.2 million. You are planning the audit of Bears World and are considering using some of the procedures for gathering audit evidence recommended by ISA500 as follows: (i) Analytical Procedures (ii) Inquiry (iii) Inspection (iv) Observation (v) Re-calculation Required: a) For EACH of the above procedures: (i) Explain its use in gathering audit evidence. (ii) Describe one example for the audit of BearsWorld. b) Discuss the suitability of each procedure for BearsWorld, explaining the limitations of each