Question 2 (this question has four parts, (a), (b), (c) and (d)) (12 marks)

Fabulous Furniture Suppliers (FFS) is furniture retailer, which operates a number of retail outlets across Victoria. FFS has a central warehouse and the inventories are purchased and stored centrally. Each store holds floor stock of display furniture, but delivery of customer orders are made directly from the central warehouse.

All inventories are purchased from suppliers in Malaysia with all prices in $US. FFS does not hedge its foreign currency commitments. FFSs suppliers require a large deposit on all purchase orders. It takes approximately 4 months for the goods to be delivered to FFS from the date of the order. Ownership of the inventory passes to FFS on the date of shipment. When the goods are shipped, the suppliers electronically send the shipping documents to FFS. FFS is required to pay the balance remaining on the inventory, when the inventory arrives in their warehouse.

FFS upgraded its existing computerised inventory recording system during the year.

Required

1. Identify and explain three (3) inventory-related assertions at risk in FFS.

(3 marks)

Answer:

Question 2 (Continued)

1. Identify three (3) internal controls you would expect in FFSs inventory system.

1. Based on your risk assertions identified in part (a), state three (3) substantive audit procedures you would undertake to verify FFSs year-end inventory balance. (3 marks)

2. Explain how each procedure identified in part (c) above provides evidence for the assertion being tested. (3 marks)

Question 2 (Continued)

(c) substantive procedure	(d) How the procedure provides evidence for the assertion