The following is an excerpt from a recent SEC enforcement release.

This matter involves accounting, financial reporting, and control failures by Tandy, a specialty leather retailer headquartered in Fort Worth, Texas. These deficiencies resulted in a multi-year restatement in Tandys financial statements concerning, among other things, inventory, net income and gross profitTandy Leather Factory, Inc., is the worlds largest specialty retailer of leather goodsDating back to at least 2016, Tandy represented in its public reports that [i]nventory is stated at the lower of cost or net realizable value and is accounted for on the first-in, first-out method. This means that sales of inventory treat the oldest item of identical inventory as being the first sold. However, inventory could not be valued at FIFO because the historical costwas always updating to the most recent cost in the inventory tracking system. The inaccurate inventory values flowed from the inventory system to Tandys financial statements.

Greene and others at the company knew that the companys information systems did not maintain inventory valuations consistent with FIFO. As a result, Greene and other Tandy personnel utilized a separate manual process that failed to value inventory at FIFO. Specifically, Tandys inventory purchasers were supposed to track inventory for all SKUs across all of Tandys stores domestically and internationally, and only change the price in the inventory tracking system after Tandys stores sold through the existing inventoryAccordingly, the inventory tracking system limitations caused Tandys inventory valuations to be inaccurate, which in turn impacted the companys calculations for inventory, net income, and gross profit for each quarterly and annual reporting period. As a result, Tandys financial statements dating back to at least 2016 were inaccurateThe chart below shows the originally reported and restated amounts for inventory, net income and gross profit for Fiscal Years 2017 and 2018:

Please answer the following questions. Here is our account and assertion matrix for your reference (if you believe that it is necessary)

Flag question: Question 13Question 1310 pts

Please choose the false statement

Group of answer choices

The movement in gross profit in 2017 and 2018 before and after the restatement was consistent with the movement in net income before and after the restatement.

Net income was understated in both 2017 and 2018

Restated inventory levels were higher in 2017 than they were in 2018

Inventory was overstated in both 2017 and 2018

Flag question: Question 14Question 1410 pts

Please indicate what you believe the specific accounts that were affected by the FIFO pricing problem

Group of answer choices

Inventory, net income and gross profit

Inventory, revenue, tax expense and prepaids

Inventory, cost of sales, tax expense, accrued income taxes

Inventory, cost of sales, revenue and accounts receivable

Flag question: Question 15Question 1510 pts

Relative to inventory and cost of sales the specific error described above please provide me with the assertions that you as an auditor should have been most concerned aboutand tell me why.

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Flag question: Question 16Question 1610 pts

1. The case describes a problematic inventory system where, rather than valuing inventory at its historic cost (the price it was purchased), it was valued at its most recent purchase price. Choose the statement that is true.

Group of answer choices

Given that 2017 and 2018 were inflationary periods, you would expect inventory to have been consistently overvalued

Given that 2017 and 2018 were inflationary periods, you would expect inventory to have been consistently undervalued

The sheer quantity of inventory would have no impact on the overall valuation of inventory.

Managements manual fix of the system was sufficient to overcome the problems with the automated system.

\begin{tabular}{|c|c|c|c|c|c|c|c|c|c|} \hline & \multicolumn{3}{|c|}{ Inventory } & \multicolumn{3}{c|}{ Net Income } & \multicolumn{3}{c|}{ Gross Profit } \\ \hline FiscalYear & Reported & Restated & % & Reported & Restated & % & Reported & Restated & % \\ \hline 2017 & 37,311,197 & 34,546,084 & 7.4% & 4,451,751 & 2,478,444 & 44.3% & 52,113,829 & 49,085,661 & 5.8% \\ \hline 2018 & 33,867,276 & 33,302,549 & 1.7% & 1,963,828 & 4,398,365 & 124.0% & 50,580,191 & 50,940,945 & 0.7% \\ \hline \end{tabular}