On September 30, 2019, Able Chemicals Inc., a chemical wholesaler, conducted its annual year- end inventory count. Able Chemicals stores all its chemicals in large storage silos (very tall cylinder-shaped metal bins). Able Chemical's staff member Michael Bigs was assigned to help with the year-end chemical inventory count. The volume of the chemicals (in litres) is estimated using a mathematical formula and the dimensions of the silo and the space taken up by the chemicals inside the silo. To figure out the space taken up by the chemicals inside the silos, Bigs was supposed to climb on top of each silo and use a long measuring stick to find out the depth of chemicals inside each silo. Since it was cold and windy, Bigs didn't feel like climbing on top of the silos. He simply guessed the depth of the chemicals and gave his numbers to the company's controller, who used them and the mathematical formula to derive the volume of chemicals inventory on hand at year-end. a) Based on the facts in this case, identify the relevant management assertion at most risk of being incorrect: Circle the number of your choice. (1 mark) 4) Rights & Obligations 5) Completeness 6) Classification 1) Valuation 2) Cut-off 3) Existence b) Propose two controls that Able Chemicals Inc. could implement to ensure the chemicals inventory count is done correctly. (4 marks) c) How should an auditor deal with the inventory count issue here? (4 marks) On September 30, 2019, Able Chemicals Inc., a chemical wholesaler, conducted its annual year- end inventory count. Able Chemicals stores all its chemicals in large storage silos (very tall cylinder-shaped metal bins). Able Chemical's staff member Michael Bigs was assigned to help with the year-end chemical inventory count. The volume of the chemicals (in litres) is estimated using a mathematical formula and the dimensions of the silo and the space taken up by the chemicals inside the silo. To figure out the space taken up by the chemicals inside the silos, Bigs was supposed to climb on top of each silo and use a long measuring stick to find out the depth of chemicals inside each silo. Since it was cold and windy, Bigs didn't feel like climbing on top of the silos. He simply guessed the depth of the chemicals and gave his numbers to the company's controller, who used them and the mathematical formula to derive the volume of chemicals inventory on hand at year-end. a) Based on the facts in this case, identify the relevant management assertion at most risk of being incorrect: Circle the number of your choice. (1 mark) 4) Rights & Obligations 5) Completeness 6) Classification 1) Valuation 2) Cut-off 3) Existence b) Propose two controls that Able Chemicals Inc. could implement to ensure the chemicals inventory count is done correctly. (4 marks) c) How should an auditor deal with the inventory count issue here? (4 marks)
