Part a - Perform the following tasks and document them in the ABC Risk and Material Memo Template Word document. · Preliminary Inherent Risk Assessment - Review the description of ABC Applia
| ABC Appliances Inc. | WP B.2.1 | ||
| Inherent Risk and Materiality Memo | Initials | Date | |
| Prepared | |||
| Reviewed |
Preliminary Inherent Risk Assessment
Management policy of maintaining large inventory to meet customer demand - The auditee maintains large inventories to facilitate sales. However, this increases the risk of obsolete inventory due to slow turnover. Assessing the value of obsolete inventory involves management judgment and increases the risk that inventory valuations will be overstated. Thus, I would recommend careful scrutiny of Southwest's inventory valuation allowance based on the lower of cost or market rule.
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