State the risk of understatement

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Reference no: EM13850592 , Length:

You are the auditor of A Ltd, a manufacturer in trains. The following information relates to the operation of the company:


Raw materials are purchased from overseas suppliers. They are placed at the warehouse.

Work in progress are marked up 10% on cost to cover handling and administrative expenses. The work in progress entries are reviewed on a monthly basis.

Trade payables

Trade payables are processed through the accounts department.

A delivery request form is used to order all inventory with the aim to direct the suppliers where to mail the invoices and where to deliver the good.


A Ltd. has recently patented an electronic circuit board which allows the trains to move faster. Management is disappointed with the response from customers locally but there is interest in the product from foreign companies.


State the risk of understatement/overstatement and the audit evidence to be collected to verify the financial report assertions of the following items:

(1) Inventory

(2) Trade payables

(3) Patents

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Reference no: EM13850592

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