(b) While the refrigeration units were undergoing modernisation Lamont outsourced all its cold storage requirements
to Hogg Warehousing Services. At 31 March 2007 it was not possible to physically inspect Lamont’s inventory
held by Hogg due to health and safety requirements preventing unauthorised access to cold storage areas.
Lamont’s management has provided written representation that inventory held at 31 March 2007 was
$10·1 million (2006 – $6·7 million). This amount has been agreed to a costing of Hogg’s monthly return of
quantities held at 31 March 2007. (7 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Lamont Co for the year ended
31 March 2007.
NOTE: The mark allocation is shown against each of the three issues.
正确答案：
(b)Outsourcedcoldstorage
(i)Matters
■Inventoryat31March2007represents21%oftotalassets(10·1\/48·0)andisthereforeaverymaterialiteminthe
balancesheet
■Thevalueofinventoryhasincreasedby50%thoughrevenuehasincreasedbyonly7·5%Inventorymaybe
overvaluedifnoallowancehasbeenmadeforslow-moving\/perisheditemsinaccordancewithIAS2Inventories
■Inventoryturnoverhasfallento6·6timesperannum(2006–9·3times)Thismayindicateabuildupof
unsaleableitems
Tutorialnote:IntheabsenceofcostofsalesinformationthisiscalculatedonrevenueItmayalsobeexpressed
asthenumberofdayssalesininventoryhavingincreasedfrom39to55days
■Inabilitytoinspectinventorymayamounttoalimitationinscopeiftheauditorcannotobtainsufficientaudit
evidenceregardingquantityanditsconditionThiswouldresultinan‘exceptfor’opinion
■AlthoughHogg’smonthlyreturnprovidesthirdpartydocumentaryevidenceconcerningthequantityofinventoryit
doesnotprovidesufficientevidencewithregardtoitsvaluationInventorywillneedtobewrittendowniffor
exampleitwascontaminatedbytheleakage(beforebeingmovedtoHogg’scoldstorage)ordefrostedduring
transfer
■Lamont’swrittenrepresentationdoesnotprovidesufficientevidenceregardingthevaluationofinventoryas
presumablyLamont’smanagementdidnothaveaccesstophysicallyinspectiteitherIfthisisthecasethismay
callintoquestionthevalueofanyotherrepresentationsmadebymanagement
■WhethersincethebalancesheetdateinventoryhasbeenmovedbackfromHogg’scoldstoragetoLamont’s
refrigerationunitsIfsoaphysicalinspectionandroll-backofthemostsignificantfishlinesshouldhavebeen
undertaken
Tutorialnote:CreditwillbeawardedforotherrelevantaccountingissuesForexampleacandidatemayquestion
whetherforexamplecoldstoragecostshavebeencapitalisedintothecostofinventoryOrwhetherinventorymoves
onaFIFObasisindeepstorage(ratherthanLIFO)
(ii)Auditevidence
■AcopyofthehealthandsafetyregulationpreventingtheauditorfromgainingaccesstoHogg’scoldstorageto
inspectLamont’sinventory
■AnalysisofHogg’smonthlyreturnsandagreementofsignificantmovementstopurchase\/salesinvoices
■Analyticalproceduressuchasmonth-on-monthcomparisonofgrossprofitpercentageandinventoryturnoverto
identifyanytrendthatmayaccountfortheincreaseininventoryvaluation(egifLamonthaspurchased
replacementinventorybutspoileditemshavenotbeenwrittenoff)
■PhysicalinspectionofanyinventoryinLamont’srefrigerationunitsafterthebalancesheetdatetoconfirmits
condition
■Anaged-inventoryanalysisandrecalculationofanyallowanceforslow-movingitems
■Areviewofafter-datesalesinvoicesforlargequantitiesoffishtoconfirmthatfairvalue(lesscoststosell)exceed
carryingamount
■Areviewofafter-datecreditnotesforanyreturnsofcontaminated\/perishedorotherwisesubstandardfish
