You are a senior auditor employed in the mid-tier accounting firm, Jobbo & Hobbo (J&H), working on the audit of Bolts and Nuts Ltd (BNL) for the year ended 30 June 2017. The audit partner has asked you to assist in the planning of the audit. You gather the following information about the company.

BNL has been operating for a number of years as a manufacturer of bolts and nuts. BNL has proudly always used Australian steel in its products. However recently there has been a shortage of Australian steel and BNL has had to import steel from overseas. It is concerned that the steel quality from overseas suppliers may not be as high as steel purchased from Australian suppliers.

All international shipments to BNL are invoiced and paid in US dollars. BNL is required to pay for freight and insurance costs. The steel is shipped FOB (i.e. BNL owns the steel once it is loaded onto the ship). All shipments arrive in Australia within a 15-day period after loading onto the ship. All overseas suppliers' accounts are settled 30 days after the date of shipment.

BNL sells its products solely within Australia. In 2015, 50% of its sales were made to Bunnings, 40% to Masters and 10% to Home Hardware. The closure of Masters has led to a significant fall in sales. As a result, inventory levels are higher than usual. BNL is not too concerned as nuts and bolts are not products that become out-of-date. The fall in sales revenue has had an impact on cash flow and as a result, creditor payments to local suppliers have been delayed. The company is reviewing its workforce and is considering making some workers redundant. Some plant and machinery is not currently being used. Therefore the accountant at BNL has stopped depreciating these assets.

Required

a)Identify and explain four inherent risks in BNL.

b)For each of the inherent risks you identified in part a), list one account in BNL that might be at risk of material misstatement.

c)For each of the accounts you identified at risk of material misstatement in part b), identify one audit assertion that is at risk of material misstatement as a result of the inherent risk.