Question 1 - Part b

In this lesson

1. 0:00 Inventory risk justification overview
2. 2:01 Assessing materiality of inventory balances
3. 4:00 Raw materials analysis and low risk assessment
4. 5:22 Work in progress complexity and valuation risks
5. 8:00 Work in progress justification write-up
6. 10:54 Finished goods overvaluation and NRV concerns
7. 12:52 Finished goods written answer examples
8. 15:57 Audit procedures for raw materials
9. 17:04 Work in progress audit procedures
10. 20:13 Finished goods audit procedures

About this lesson

This is part B of a 14-mark question requiring you to build on your risk identification from part A, then develop seven substantive audit procedures that directly relate to the specific risks you've identified. You'll work through inventory balances and supporting information to evaluate materiality, complexity, and control weaknesses, then structure your answer to demonstrate professional judgement and earn both technical and professional marks. The lesson walks you through a structured approach: first, establishing whether inventory is material using the figures provided and your materiality threshold from part A. You'll learn how to evaluate each inventory category separately—raw materials, work in progress, and finished goods—identifying which pose genuine risks and which don't, rather than treating all inventory as equally risky. For work in progress, you'll see how to spot complexity and subjectivity in valuation (job costing, overhead allocation, percentage completion estimates), and connect these to control weaknesses like manual data entry and the new finance director's unfamiliarity with the method. For finished goods, you'll identify specific issues: a completed boat held in inventory that may already have been sold, and a boat awaiting safety inspection that could require additional costs, affecting net realisable value. The final section demonstrates how to write audit procedures that earn marks. Rather than generic inventory procedures, each one must directly address a risk you've identified—obtaining bulk purchase documentation for raw materials, sampling contract costs to supporting documents for work in progress, reviewing overhead allocation calculations for reasonableness, and examining sales invoices and contract terms for the finished goods issues. You'll learn how to structure procedures with a clear verb, specify what you're obtaining, and explain why, using examples to add depth and show professional competence. This approach ensures you're gathering evidence that actually matters for this client's risks.

Duration: 22m