Reference no: EM132865841

Question - A very short & brief response regarding each of the following circumstances listed below is required: Information given: Recently you proposed on a public corporation's audit and won the bid with a new client. The have gone through your firm's internal risk assessment process for acceptance and are considering a lower risk engagement. You have recently signed the engagement letter to get started.

a) As an auditor you are working on setting a materiality threshold for the new engagement. What is the primary consideration when coming up with a  relevant materiality benchmark(s) to utilize in order to calculate the Overall Materiality for an entity?

Additional information given: Your client is in the oil industry and manufactures oil related tools. The inventory is counted monthly and there is an adequate separation of duties for all key functions. The control environment is well designed & operating effectively. There is some additional risk around the inventory (mainly obsolescence due to industry evolution).

b) What would be an appropriate inherent risk assessment for this clients inventory account for the inventory valuation assertion?

c) What would be an appropriate control risk assessment of the client's current inventory cycle?

d) Would control reliance in this case be considered none, medium, or high in this case?

e) What would be considered a planned level of substantive procedures around the physical existence of the clients inventory?

f) What would be considered a planned level of substantive procedures around the valuation assertion for inventory obsolescence? What is one audit procedure that an auditor could perform to test the valuation assertion for inventory obsolescence? What information is needed to conduct such a test?