QUESTION 2

• Your firm is the auditor of Silverhill Potteries, which is a wholesaler of pottery products (eg cups, saucers, plates, mugs etc), and you are carrying out the audit for the year ended 30 April.
• You have been asked by the senior in charge of the audit the audit to carry out checks on cut-off and to identify stock which may be worth less than cost and to check that it has been valued correctly.

The company has a computerised inventory control system which records receipts and dispatches of stock, current stock quantities and the age of the stock. You attend a count of all the stock at the year end.

• You are required:
• (a) To explain the procedures you would perform to confirm that inventory, sales and purchases cut-off is accurate. (5 marks)
• (b) Define in detail the basis for valuing inventory in accordance with International Financial Reporting Standards. (3 marks)
• (c) (i) State the types of stock which may be worth less than cost; (2 marks)
• (ii) Describe the investigations you will carry out to identify this stock; (5 marks)
• (iii) Describe the audit work you will carrying out to determine the net realisable value of the stock you have found from your investigations in part (c) (ii) above. (5 marks)