Reference no: EM132865330

Question - You have been assigned to the audit of the financial statements of Coffee Limited (CL) for its year ending December 31, 2020. The company started five years ago and is in the business of obtaining coffee beans from around the world under a fair trade policy, roasting the beans locally, and selling them to coffee shops in Alberta. Most of their sales are in the urban centers of the province. CL's business involves obtaining raw coffee beans from coffee-producing countries around the world. CL's business model is to only purchase coffee from certified fair trading plantations where the agricultural workers receive a fair wage and share of profits. Investors in CL's shares are primarily ethical investors and mutual funds that concentrate on investing in companies that have high corporate social responsibility ratings.

In the preliminary audit planning done to date, your audit manager has determined that inventory is the account with the highest risk of material misstatement. Last year, the audit team uncovered an error in the ending inventory balance in the amount of a $65,000 overstatement.

Required -

a. List and explain factors your audit firm would have to consider to before accepting CL's audit engagement.

b. Your manager has asked you to assess the inherent risk of misstatement at the following five assertion level for the inventory: existence, completeness, valuation, rights and obligations, and classification. Use the level of high, medium, or low to describe your assessment. Explain the factors that support your assessment. (e.g., Existence: High - Reasons).

c. Describe two audit evidence-gathering procedures you would perform that would provide relevant evidence regarding one or more of the assessed risks in the inventory assertions.

d. Identify qualitative factors that would affect the assessment of materiality.