ABC Limited is a mid-sized manufacturing company engaged in the production of electrical components and spare parts. The company maintains…

ABC Limited is a mid-sized manufacturing company engaged in the production of electrical components and spare parts. The company maintains significant inventory across multiple warehouses. During the audit of the financial statements for the year ended 31st March 2025, the auditor noted that inventory prices were highly volatile during the year and that discrepancies in inventory records had been reported in earlier audits. Certain inventory items were also identified as slow-moving and required significant management judgement for valuation. Based on these factors, the auditor assessed the risk of material misstatement in inventory valuation as high. In the course of the audit, the auditor performed inquiries with the stores manager, production head, and finance personnel to understand the process for identification of obsolete inventory and valuation adjustments. While management represented that adequate provisions had been made for obsolete inventory, the stores manager indicated during inquiry that certain obsolete items were still carried at cost due to pressure to meet profitability targets. This inconsistency prompted the auditor to reassess audit procedures. Considering the high risk assessment and contradictory responses obtained during inquiry, the auditor decided to perform tests of controls relating to approval of inventory write-downs and review of inventory ageing reports. Based on the results, the auditor concluded that controls over identification and valuation of obsolete inventory were not operating effectively throughout the period. Accordingly, the auditor designed and performed substantive procedures, including detailed testing of inventory valuation, examination of subsequent sales prices, physical inspection of slow-moving items, and substantive analytical procedures. While designing these procedures, the auditor identified conditions that would constitute a misstatement in the relevant assertions relating to inventory. While evaluating the audit evidence obtained, the auditor considered the management assertions made in representing that the financial statements are prepared in accordance with the applicable financial reporting framework, particularly assertions relating to existence, valuation, completeness, and presentation and disclosure of inventory. Based on above, answer the following MCQs: