Walker Bat Company is a private company that manufactures a line of high-end baseball bats. They have been in business 25 years and have a reputation in the industry for high-quality products and excellent customer service. Sales are made only to wholesalers or larger retail stores. You are conducting the audit.

At year-end, the company had a total of $6.3 million in assets.

Inventory information is:

Raw materials (indirect material $ 400 000 Raw materials (wood products) 450 000 Work in progress 1 350 000 Finished goods _____250 000 __$2 450 000 Finished goods consists of: Material 48% Direct labour 22 Overhead ___________30 100%

The bat industry is very competitive, primarily due to imports from Asia and Europe. To help manage costs, Walker uses a job-order, standard cost system. Standard costs are assessed quarterly. Each job is costed and compared to the standard. The periodic inventory system is used, so inventory is counted only at year-end.

Due to problems with raw material quality and new staff, losses have been incurred in the last six months of the year. Your review of last year's audit file indicated that there were numerous inventory adjustments required last year.

Required

Using the components of the audit risk model, assess the risks associated with the audit of inventory. "Assess" in this context means determine increases or decreases in a specific risk along with the reasons.