Question 1 (40 marks) Case: Sassoon Ltd As the audit manager of Lum Lo Ltd, CPAs, you are in charge of the annual audit of Sassoon Ltd for the year...

5. This year, Sassoon Ltd has started to explore the mainland market by sending goods on a consignment basis to a number of pharmacies in Shenzhen. The respective pharmacies produce a monthly sales report for Sassoon Ltd which uses the information to recognize monthly revenue as well as the basis for invoicing the pharmacies. The industry standard credit period of 60 days from the invoice date is given to the pharmacies. The consignment inventory of HK$2,000,000 is included in the year-end inventory which represents about 10% of the total inventory. Sassoon Ltd recognizes $6,000,000 of revenue from consignment sales for the year which represents about 10% of the sales revenue for the same period.

Required

1. a Assess the risk of material misstatements at the nancial statement level. You should discuss the speci c circumstances of Sassoon Ltdthat you have considered and your judgement on the level of risk (i.e. low, medium or high). (16 marks)
2. b Discuss possible causes of the write-off of HK$900,000 of SassoonLtd's inventory and the assertion(s) affected by it. (12 marks)
3. c Regarding the consignment sales of Sassoon Ltd, identify the majoraudit issues in the company's consignment sales recognition for
4. the purpose of assessing the risk of material misstatement at the assertion level. (12 marks)