Component parts are purchased from a number of suppliers. Prices of components have been steadily increasing over the past two years leading to a reduction in the gross profit margin. The forecast financial statements for the year ending 30 September 20X5 show inventory valued at cost.
Audit Risk and Reponse?
In June 20X5, Knight Electronics Co decided to revalue its premises, which had previously been accounted for using the historic cost model.
Properties with a carrying amount under the cost model of $3.8m were revalued to $8.4m based on a valuation performed by management.
The finance director also carried out an extensive review of non-current asset lives and decided to extend the useful life of plant and equipment from five years to eight years
Audit Risk and Reponse?