Reference no: EM132607281

You are undertaking the audit for the year ended 30 June 2020 of Berkely Beats Ltd, a manufacturer and retailer of steel drums. As in previous years, Berkely Beats has accounted for inventory on a last in, first out (LIFO) basis. Berkely Beats also uses a 'just-in-time' inventory management system and therefore the effect of this departure from Australian accounting standards was previously not material. In the current year, however, the company has a large stockpile of inventory at year end, due to an unexpected cancellation of a major order en route (on the way to) to its destination. In order to cut freight costs, Berkely Beats stored the goods temporarily in Thailand, hoping for an order from another South-east Asian customer.

• Unfortunately, you were not told of this problem until after balance date and did not conduct a stocktake of the inventory. You have also been told that some of the inventory has since been shipped to a number of different customers to fill outstanding orders. The available audit procedures have been unable to validate the existence of this inventory at balance date. The relevant inventory is currently recorded at $2 500 000. Audit procedures have indicated that, had inventory been accounted for on a first in, first out (FIFO) basis, it would have been recorded at $3 500 000. Materiality for the audit has been set at $1 000 000.

Required

Question 1: What is the most appropriate auditor's opinion for Berkely Beats for the year ended 30 June 2020?