The second audit client is Ash Trading Co (Ash). Ash is a new client of Chestnut & Co, its year end was 31 January 20X5 and the firm was only appointed auditors in February 20X5, as the previous auditors were suddenly unable to undertake the audit. The fieldwork stage for this audit is currently ongoing. 102 The inventory count at Ash’s warehouse was undertaken on 31 January 20X5 and was overseen by the company’s internal audit department. Neither Chestnut & Co nor the previous auditors attended the count. Detailed inventory records were maintained but it was not possible to undertake another full inventory count subsequent to the year end. The draft financial statements show a profit before tax of $2·4 million, revenue of $10·1 million and inventory of $510,000. Which of the following correctly summarises the effect of the issue relating to the inventory count at the year end?
A.
Material : No Financial statement impact: Current assets are understated
B.
Material : No Financial statement impact: Gross profit may be understated
C.
Material : Yes Financial statement impact: Opening inventory may be materially misstated
D.
Material : Yes Financial statement impact: Gross profit may be overstated