Describe one substantive test of detail

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Question - ChocCakes Ltd manufactures cakes for sale in supermarkets around Australia. Despite the excellent qualityof raw food materials available in Australia, ChocCakes imports many products from China and SouthAmerica. In the past, there have been some issues around the quality of the raw materials received. All deliveries are invoiced and paid in US dollars. ChocCakes uses hedge instruments to reduce the risk of large foreign currency losses. The raw materials are shipped to Australia and under the contracts ChocCakes has signed, they take ownership on the day the ships leave the overseas port. On average the shipments take 18 days to arrive in the warehouse of ChocCakes from the day of shipment.

The audit partner has identified that inventory is at risk of material misstatement.

Required -

a) Based on the facts above, explain two key risks of material misstatement in inventory.

b) For each key risk outlined in (a) above, identify and explain the assertion most at risk (only identify one assertion for each risk).

c) For each assertion at risk outlined in (b), describe one substantive test of detail that is specifically responsive to each risk of material misstatement.

Reference no: EM132999605

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