MAA303 Audit And Assurance - Chapter 4: Risk Assessment II

4.24 Audit risk and inventory

Biggest Bargains stocks thousands of items that range in value from $1 to $100. The inventories on hand represent a material portion of current assets. The merchandise items change according to the season and the promotional theme adopted by the stores’ management for the year. Merchandise is ordered up to four months in advance from Chinese and Korean suppliers. These special orders require Biggest Bargains to give the suppliers substantial deposits upon placement of the orders.

Required
Identify the accounts (balance sheet and income statement) that are at risk of material misstatement for Biggest Bargains? Explain why they are at risk.