You are planning the audit of BestCookies 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 materials RM 850,000

Work in progress RM 525,000

Finished goods RM 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 warehouses 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.

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

(3 marks)

Identify and discuss the key financial assertions for the audit of inventory at BestCookies Ltd.

(6 marks)

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

You may present your answer in tabular format.

(14 marks)