Question

In auditing, which accounts/assertions will have the highest inherent risk for a food and beverage company? Please provide examples.

Answer 1

There are a total of five audit assertions namely:

• Existence
• Completeness
• Rights & Obligations
• Accuracy and Valuation
• Presentation & Disclosure

In case of a food and beverage company, the assertions having the highest inherent risk for a food and beverage company is Accuracy and Valuation. This assertion states that all the figures stated in the financial statements are accurate and on the basis of proper valuation of the assets.

For instance, the assertion of accurate valuation of inventory states that the inventory must be valued in accordance with the IASB Guidelines (International Accounting Standards Board Guidelines) which require them to be valued at cost, or Net realisable value, whichever is lower. In case of a food and beverage company, the value of the stock must be as per the guidelines referred above. However, due to the inherent nature of audit, the valuation assertion may not hold good. This is because in a food and beverage company, which has a regular sales pattern, there is a closing stock of inventory of food items, raw unprocessed food stuffs, and other various kind of assets like big ovens, processor machines, large cold storage refrigerators and the like which may not be correctly valued. The closing stock of consumables may not be ajusted for on account of spoilage, perishability or other factors.

Thus, Accuracy and Valuation is the audit assertion having the highest inherent risk if the company is a Food & Beverage Company.