Question

In: Finance

Select all that apply relative to the production inventory cycle: A) The presentation and disclosures assertion...

Select all that apply relative to the production inventory cycle:

A) The presentation and disclosures assertion of completeness is generally high because disclosures concerning valuation method, obsolescence and returns are important to a user’s understanding of inventory at year-end.

B) The primary concerns with inventory on the balance sheet are existence, valuation and allocation.

C) The cutoff assertion related to inventory may or may not be high for manufacturers and merchandising concerns.     

D) The primary concern with WIP inventory is that is can hide waste and fraud.

Solutions

Expert Solution

Applicable to Inventory :- A, B, C

A- In order to have proper understading on inventory ; user of financial statements requires method of valuation; any obsolete stock and provision on the stock and value of stock on the last of the financial year. These are covered in Presentation and disclosure assertions; therefore it is required.

For example : To observe the quality and the condition of the goods for any sign of impairment/obsolescence id one duty of auditor

B-On the Balance sheet date the inventory is requried to be verified for existence, valuation and allocation therfore it is required. Fox example conducting Physical stock verification.

C- Cutoff wrt to inventory is highly important for manufacturers, without proper cutoff procedure inventory on balance sheet date cannot be provided accurately.

D- Statement is correct, because in case of WIP chances of lying waste stock is high and also sometimes fraud can be concealed by showing non existing stock in WIP


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