SECTION B Total 51 marks) Question 4(17 marks - approximately 35 minutes) ABC Company (ABC) is a baby products wholesale supplier. It operates a central distribution center in Hong Kong and five distribution centers in China. The inventory balance contributes more than 10% of ARC's total assets ABC has implemented a sophisticated perpetual inventory system that could assist in managing quantity levels in Hong Kong and the distributions centers in China. In order to handle the works smoothly, all accounting is maintained in Hong Kong, including purchases which originate from Hong Kong centre using online inventory information available for all centers. The perpetual system does not accept inventory additions without the recording on a valid receiving report and it subtotals the quantity of inventory in the system and agrees with the general ledger system on a daily basis to ensure quantities agree. It also tracks the average number of days each inventory product number has been in the center. All inventory deliveries are made to Ilong Kong center and then sent to other centers, again using the online information to record and monitor all the inventories movements. Product and quantity information for sales are prepared online by each distribution center for updating the perpetual records, with a hard copy sent to Hong Kong Each center takes a quarterly physical inventory for comparison to and adjustment of perpetual records. The counts are sent to Hong Kong where all adjustments are made Internal auditors test the perpetual records continuously, sample physical inventory counts and test inventory adjustments. Their test and results are filed in Hong Kong Required: You are the audit engagement manager of the audit of ABC's financial statements. Identify the internal controls used by ABC on inventory and suggest the relevant tests of control that can be used to test the effectiveness of the identified controls. (12 marks) (a) (b) Currently, there is an outbreak of pandemic disease around the world and it is impractical for your firm to attend inventory taking of ABC at the balance sheet date due to government restrictions and concerns about the safety of stafl. Explain your response to this situation