You are planning the audit of Apa Ltd, a manufacturing company which sells biscuits and snacks food to a large number of retailers nationally. You have been assigned to conduct inventory audit have obtained the following information from client staff:

Year-end inventory is expected to be as follows (** This represent 20% of total assets);

Raw materialsRM850,000

Work in progressRM525,000

Finished goodsRM 1,005, 000

RM 2,380,000

• The company uses standard costing to value its inventory, which consists of approximately 150 product line. At year-end, the relatively equal inventory value of each of these lines will be held.
• The inventory is stored approximately fifty warehouses nationally. The company has a policy of taking out short-term leases on unused warehouse space (to minimize rental costs, so the number of warehouses in use varies over time.
• Goods are manufactured centrally at the Bigtown factory and then shipped out to the warehouses.
• The recent launch of a new biscuits, Creamycheezy bix, resulted in poorer than expected sales. Consequently, the company has excess inventory in finished goods, amounting to RM 200,000. Their expiry date is 6 weeks after the reporting date.
• A new work-in-process system was successfully introduced 2 months after the previous year-end. Staff have commented on how this system is a great improvement.
• Raw materials largely comprise bulk inventories of flour, rice and potatoes, these are held in large storage bins at the Bigtown factory.
• Work in process largely includes biscuits dough, which is stored in several locations throughout the Bigtown factory - both in large sealed vats awaiting processing and in mixing bowls attached to the ten different production lines.
• As in previous years, all warehouse and the Bigtown factory will be closed at reporting date to allow a full stock take. A perpetual inventory system is used.
• From your experience in previous years, you know that the company has a highly accurate budgeting system. Final figures rarely vary more than 3% from budget.

Required:

i) How does the assessed level of detection risk have an impact on the nature, timing and extent of substantive procedures?

(3 markah /marks)

ii)Identify and discuss the key financial assertions for the audit of inventory at Apa Ltd.

(6 markah /marks)

iii)Based on the assertions that you've identified above; Describe in detail the audit procedures you would undertake to cover these issues.

(14 markah /marks)