Almost all auditors are deemed to be some obligations that are evident in investigating and evaluating the financial statements of companies so that it might be made certain that they do not encompass any type of material misstatements due to any error or frauds. The stakeholders related with these companies in order to analyses the fairness and honesty within companies financial statements. At the time such financial statements are developed, the auditors often make some sort of assertions for their audit customers. Such assertions signify implicit or explicit depictions along with claims that are used by the management for developing financial reports concerned with suitability of several elements along with financial statements disclosures.
Several auditing assertions are employed in consideration to property, plant and equipment, inventory and others which encompass cut off, valuation, occurrence, accuracy, existence along with completeness. At the time consumers financial statements are audited, the auditors must consider to investigate the audit assertions in a way that fairness of used judgments and assumptions used by management to develop financial statements might be verified. Relied on these investigations, the key audit matters must be determined in case the risks have significance for taking audit measures. The current report might focus on certain assertions employed for the given companies from the auditor’s perception in a way that the key audit matters are ascertained.
Cut Off Risk Assentation
An audit client management has the responsibility to make sure that the inventory values are suitably recoded at the time they take place within an accounting period. For this reason, consideration must be provided in order to analyses shipping and receiving documents associated with inventory as it results in cut off of inventory. This restricts the business companies to record the previous year’s inventory value within the accounting statement of present year. Conversely, Advanced Commuter Solutions Limited has not abided by this aspect because of consideration of 2018 inventory record in sales for 2017 and 2018. Such event also validates that there are certain errors within recording of inventory in a desired accounting period. Another major cause behind this inclusion can be the software concern or certain deliberate misconduct conducted by any employee. For this reason, the cut off is observed to be at risk.
Accuracy/ Valuation Risk Assentation
For testing this particular assertion, the auditors are observed to deal with two important audit matters. These encompass the accuracy of the figures in consideration to the physical count f inventory along with making sure that the inventory amount is considered as sales count within income statement from the financial position statement of a company. Due to such reasons, it is important to carry out inventory valuation from the behalf of auditors. Based on the case information, Advanced Computer Solutions Limited as considered inventory transfer from central warehouse to six warehouses regionally. This type of transfer has the possibility of wrong physical inventory count and for this reason; there might be a downfall in the year 2018 regarding inventory turnover. In addition, the organization has been dealing with software issues that might result in concerns related with procedure of inventory valuation. For such reasons, the valuation based assertions or accuracy is observed to be at risk.
First Substantive Audit Procedure
For dealing with accuracy or valuation risk, the considerable audit procedure serves as methodological surveillance of every aspect related with inventory physical count associated with Advanced Computer Solutions Limited. The initiatives those are to be taken by the auditor must encompass recognizing the strengths long with weaknesses within internal control related with checking tags of inventory counts, internal control related with inventory along with existing in person at the time of inventory physical count. Moreover, it is also important to analyses the inventory count within all the six major warehouses. Finally, the management has also some major assumptions along with judgments which the auditor requires to test in accordance with the required accounting standards.
Second Substantive Audit Procedure
For conducting the cut off examination, the substantive audit procedure can encompass verifying the notes for goods attained as well as delivered which can support in recognizing the reporting date. Moreover, it is important to check whether there is a slow movement of the management or the inventory has made certain irrational adjustments within the same. Finally, certain verifications must be made on the behalf of the auditor to recognize some stop command along with attaining inventories within warehouses. This is for the reason that the combination of all such factors might place at risk the inventory cut off assertion.
ASA 701 Requirements
It is stated by “ASA 701Section 7” that the auditors are obliged to make sure the key audit matters and the establishment of same relied on them and these are to be included and disclosed within audit report. Other than that, it is revealed in “ASA 701 section 8” the definition of key audit matters those encompass concerns important for the auditors while auditing the selected companies financial reports. Moreover, selection is to be conducted after communicating with government committees. In alignment with “ASA 701 Section 9” three specific requirements needs to be considered by auditors in a way that key audit matters are entertained. This includes certain areas within financial reports that have the likability of high material misstatement uncertainty in accordance to ASA 315, the uncertain judgments along with accounting anticipations conducted by companies and impact of important audit events that took place in the accounting year. As per “ASA 701 section 10”, the auditors are accountable for recognizing the key audit matters after considering certain important concerns and their impact on audit. The rationales those are needed for determination are indicated below:
|
Significance |
Audit in Dealing with Key Audit Matters |
|
Inventory Shift in March of 2018 There might be an impact on physical inventory count procedure because of recent inventory shift from a central location for six distinct locations. Moreover, for valuation of inventory, management accounting estimates along with adequate judgments are conducted those are considered to be important for audit. |
For dealing with such concern, the audit processes employed are explained under: · Inventories verification in six locations · Observation of the work-in-progress count of inventory · Tags authentication employed for counting inventory · Assumptions along with judgments evaluation undertaken by management long with compliance with vital accounting standards · Explanation of limitation and strengths of internal control having connection with inventory · Methodological supervision of all aspects of the process associated with inventory physical count |
|
Previous Year Sales Included with Current Year Inventory For the reason that the recent year’s inventory includes a fraction of sales value of the current and last year, error is most likely to happen. In addition, there might be material impact because of vital accounting estimates involvement along with management judgments. |
For addressing such concerns, the used audit processes are explained in the following: · Exploration of whether there is slow stock movement or existence of irrational adjustments within them. · Each note certification for goods attained and delivered for recognizing the date of reporting. · Verification of whether any stop command is issued in attaining stocks within warehouses |
As an aspect of such procedure, the auditor f Green Machine Limited requires evaluating the processes and guidelines of the companies so that the revenue and capital expenses related with plant, property and equipment might be entertained. In order to make sure the same, a list of explained asset is attained by the auditor that is important to confirm that the company has abided by the necessary accounting standards along with guidelines related with property, plant and equipment expenditure.
As an aspect of the process, the depreciation policy of the company is required to be monitored by the auditor, accounting estimates along with the management judgments. After that computation of the depreciation rate by the auditor through taking into consideration certain residual amounts along with gains or losses from selling part of plant, property and equipment. For this reason, it is important to calculate depreciation rates in this step. This might support the auditor in calculating the revised rate of depreciation and along with that the suitable depreciation expenses can be ascertained.
Based on “ASA 701 section 7”, the aim of the auditor is to make sure that key audit matters, offering accurate audit opinion and the similar needs to be published in the auditor report. In addition, the exploitation of the key audit matters explained within “ASA 701 Section 8” indicates that such matters are concerns those are considered to be important for the auditors within auditing process of the financial statements and these are to be selected after conversing with the governance group of the selected company. In addition, “ASA 701 Section 9” indicated that there are three needs for auditors while ascertaining the key audit matters. These encompass certain aspects of financial statements that include high risk in conformance with ASA 315, accounting judgments and anticipations that were used by the audit consumers doubtfully long with the impact of vital concerns or transactions on auditing which took place during the accounting period. In addition “ASA 701 Section 10” needs the auditors in making sure that key audit matters after taking into account certain vital events having certain potential of affecting audit. The determination rationale is explained under:
|
Significance |
Audit in Dealing with Key Audit Matters |
|
Improper Segregation of Revenue and Capital Expense Improper segregation is carried out by the company for the capital and revenue expenditure. This can have certain material effect on the financial reports that encompass accounting anticipations along with judgments conducted by the management and are important for the audit process. |
For addressing such concerns, the implemented audit processes are explained below: · Monitoring the guidelines along with the processes of the company in order to make sure that capital expenditures and revenue are aligned with property, plant and equipment. · Attaining the list of the aforementioned assets in order to carry out the process of verification · Ensuring conformation of the fact that suitable compliance is maintained by the organization with all the necessary accounting guidelines and policies |
|
Depreciation Rate Use Below Real Property, Plant and Equipment Rate The company has employed decreased rate of depreciation in order to value its property, plant and equipment. This can result in the material impact within financial statements. In addition, the accounting anticipations along with the management judgments are considered to be important for the audit conducts of the companies. |
In order to address such highlighted concern, the employed audit processes must encompass the following: · Calculating the depreciation rate again after analyzing the residual property, plant and equipment amount along with loss or gain attained from any asset · Monitoring the depreciation policy employed by the company along with its accounting anticipations and management reviews |
Conclusion
The current report focused on certain assertions employed for the given companies from the auditor’s perception in a way that the key audit matters are ascertained. It was gathered from the paper that for testing valuation risk assertion, the auditors are observed to deal with two important audit matters. These encompass the accuracy of the figures in consideration to the physical count f inventory along with making sure that the inventory amount is considered as sales count within income statement from the financial position statement of a company. Moreover, the involvement of considerable judgments of the management along with accounting anticipations might be observed in doubtful or some areas. In dealing with key audit matters monitoring the guidelines along with the processes of the company is necessary in order to make sure that capital expenditures and revenue are aligned with property, plant and equipment.
References
Auasb.gov.au., 2019. [online] Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf [Accessed 18 Jan. 2019].
Braam, G. and Peeters, R., 2018. Corporate sustainability performance and assurance on sustainability reports: Diffusion of accounting practices in the realm of sustainable development. Corporate Social Responsibility and Environmental Management, 25(2), pp.164-181.
Caplan, D. and Dutta, S.K., 2016. Managing the risk of misleading financial metrics in annual reports: A first step towards providing assurance over management’s discussion. Journal of Accounting Literature, 36, pp.1-27.
Chan, D.Y. and Vasarhelyi, M.A., 2018. Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.
Coetzee, P., 2016. Contribution of internal auditing to risk management: Perceptions of public sector senior management. International Journal of Public Sector Management, 29(4), pp.348-364.
Curtis, E., Humphrey, C. and Turley, W.S., 2016. Standards of innovation in auditing. Auditing: A Journal of Practice & Theory, 35(3), pp.75-98.
Decaux, L. and Sarens, G., 2015. Implementing combined assurance: insights from multiple case studies. Managerial Auditing Journal, 30(1), pp.56-79.
Earley, C.E., Hooks, K.L., Joe, J.R., Polinski, P.W., Rezaee, Z., Roush, P.B., Sanderson, K.A. and Wu, Y.J., 2016. The Auditing Standards Committee of the Auditing Section of the American Accounting Association’s Response to the International Auditing and Assurance Standard’s Board’s Invitation to Comment: Enhancing Audit Quality in the Public Interest. Current Issues in Auditing, 11(1), pp.C1-C25.
Eulerich, M. and Ratzinger-Sakel, N.V., 2018. How Assurance-and Advisory-Related Purposes of Internal Auditing Influence the Cooperation With the External Auditor Empirical Evidence From Two Perspectives: Internal and External Auditors.
Fagerström, A., Hartwig, F. and Cunningham, G., 2017. Accounting and Auditing of Sustainability: Sustainable Indicator Accounting (SIA). Sustainability: The Journal of Record, 10(1), pp.45-52.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Kocken, J. and Hulstijn, J., 2017. Providing Continuous Assurance. In Proceedings of the 11th International Workshop on Value Modeling and Business Ontologies (VMBO 2017). LIST, Luxembourg.
Legislation.gov.au., 2019. ASA 701 – Communicating Key Audit Matters in the Independent Auditor’s Report – December 2015 . [online] Available at: https://www.legislation.gov.au/Details/F2015L02016/Explanatory%20Statement/Text [Accessed 18 Jan. 2019].
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.
Maroun, W., 2018. Modifying assurance practices to meet the needs of integrated reporting: The case for “interpretive assurance”. Accounting, Auditing & Accountability Journal, 31(2), pp.400-427.
Michelon, G., Patten, D.M. and Romi, A.M., 2018. Creating Legitimacy for Sustainability Assurance Practices: Evidence from Sustainability Restatements. European Accounting Review, pp.1-28.
Mkoba, E. and Marnewick, C., 2016, September. IT project success: A conceptual framework for IT project auditing assurance. In Proceedings of the Annual Conference of the South African Institute of Computer Scientists and Information Technologists (p. 26). ACM.
Moroney, R. and Trotman, K.T., 2016. Differences in Auditors’ Materiality Assessments When Auditing Financial Statements and Sustainability Reports. Contemporary Accounting Research, 33(2), pp.551-575.
Pratt, S. and Peters, E., 2017. Internal audit: Raising the bar in auditing financial crime risk. Journal of Financial Compliance, 1(3), pp.237-244.
Zainal Abidin, N.H., 2017. Factors influencing the implementation of risk-based auditing. Asian Review of Accounting, 25(3), pp.361-375.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download