Auditing And Assurance Services: Understanding The Role Of Auditors And The Scope Of Assurance Services

Assertions

Account Balances

Justifications

A

· Occurrence;

· Accuracy;

· Sales Account;

· Cash/Bank Account;

· Trade Receivable Account;

The vouching of the supporting documents were conducted to ascertain that the transaction and event that have been included in the financial statement has actually taken place (Knechel and Salterio 2016). It is a helpful process in determining that the sum and other data related to the transactions are accurate. The process is justified because scrutinizing the sales documents and checking it with other accounts is helpful in identifying the discrepancies.

B

· Existence;

· Inventory;

The procedure adopted by the entity is justified because it helps in verifying that the inventory item was physically present at the date of reporting.

C

· Occurrence;

· Purchase;

The process of examining a sample invoice of the paid vendor is a justified process because it helps to establish that the transaction or event that have been recorded has actually taken place and related to the organization.

D

· Completeness;

· Accuracy;

· Cash Accounts;

· Accounts Payable;

The auditor is required to perform audit procedure to ascertain that all the transaction are included in the financial statement (Simnett et al. 2016). In the current case, the auditor has performed audit procedure and found that not all the transaction and events are included in the financial statement. Therefore, it can be said that the audit procedure performed by the auditor is justified.

E

· Valuation and allocation;

· Sales Account;

The audit procedure adopted helps to determine that the amount included in the financial statement are appropriate. The purpose of conducting the audit procedure is to determine that all the financial policy adopted by the company are followed. Therefore, it can be said that the audit procedure by the company is justified.

Key controls

Test of Control

1

Segregation of duty

It is essential to segregate the function of the person receiving cash from the person recording the cash in accounting records. That means if it is found that the task is separated then it can be said that adequate internal control exists (Redmayne 2013).  The auditor shall make test of control by observing and making enquiry about the different functions and their performance. In this case, it can be seen that Sharon Peters is accountable for receiving the Cheques and in addition to this, he is responsible for preparing the cash receipt report. Therefore, it can be said that adequate control does not exists.

2

Reconciliation

The balance should be reconciled on a daily basis by an independent person not responsible for receiving payment or recording in the books of accounts.  The auditor should make enquiry whether an independent individual conducts the reconciliation. In this case, the credit clerk Sharon Peters is responsible for preparing the cash receipt report and he prepares the bank deposit slip. The reconciliation process conducted by Sharon Peters indicates a weak internal control procedure.

3

Documentation

The cash clerk should conduct the documentation of the cash receipt as soon as the processing takes place. The auditor should perform test of control by observing and making enquiry that the documentation procedure is conducted by the cash clerk immediately after the the transaction. In this case, it can be seen that credit clerk but not the cash clerk conduct the documentation of cash transaction. Therefore, it can be said that the internal control procedure of the organization is not sufficient.

Type of Auditors report

Reason

Adverse audit report

The auditor after conducting audit procedure is required to provide opinion after the completion of the audit of the financial statement. The audit opinion can be unqualified opinion or qualified opinion. In case of qualified opinion, it is further classified under ASA 705 that there are three type of opinions these are as adverse opinion, disclaimer opinion and qualified opinion except for certain areas. The auditor provides unqualified opinion if the auditor is content that the financial statement is structured in accordance with the Corporation Act 2001. The auditor is of the opinion that the financial statement provides a true and fair view of the financial affair of the company (Green et al. 2017). The auditor provides qualified opinion if satisfied that the financial statement of the company is materially misstated.  If it is found that there is material and pervasive misstatement in the financial statement then the auditor provides an adverse audit report. In case, the auditor is not able to gather sufficient and appropriate audit evidence for providing an audit opinion on the financial statement. If the auditor determines that, the effect could be material and pervasive then the auditor should issue audit report of disclaimer of opinion. In this case, the auditor is incapable to rely on the financial statement as the audit procedure concludes that not all the transactions are reflected in the accounts. Therefore, it can be concluded that the financial statement does not reflect fair and true view so the auditor should provide an adverse opinion in the audit report.

Type of Audit report

Reasons

Qualified opinion

The ASA 705 under para 7 provides that if the audit evidence gained indicates that material misstatement is present in the financial but it is not pervasive in that case the auditor should provide qualified opinion. If the auditor fails to gather, appropriate audit evidence and concludes that the effect is material but not pervasive then the auditor should provide qualified opinion. In this case, it can be seen that the existence of material misstatement is not pervasive but only exist in relation to the property plant and equipment so the auditor should qualified opinion in the audit report.