Reference no: EM132987737

Question - You are the auditor of Freeman Ltd, a manufacturer of cordless landline telephones. The following information was gathered by your audit senior.

Ratio analysis has indicated the inventory turnover has gone from 5.05 in 2020 to 3.72 in 2021. Inventory represented 16% of sales in 2020 and is now 21% of sales in 2021.

Management of Freeman recently decided to relax credit terms for debtors. This involved increasing the number of days to pay from 60 days to 90 days and increasing credit limits. Creditors are recorded in a ledger that is produced monthly. Freeman's staff have been having problems with the ledger because it has reached the maximum number of creditor accounts. Management have approved an upgrade to a new system, but in the meantime Freeman's staff are relying on manual accounting records.

Required - For each point 1-3 above, identify the account area at risk of material misstatement, the key assertion at risk for this account, AND an appropriate audit procedure to address this risk.