Auditing and Assurance Service Individuals Assignment

Introduction

Assertion in the process of auditing is an important element that has different changes in auditing of financial statement that are prepared by the company. An auditor mainly use audit assertion for performing the test that are totally associated with overall policy, guidelines and internal controls of the company. In this study, key assertions that are related to inventory have been discussed along with identifying two substantive audit processes for each risk that are identified. It also includes key assertion of risk that is related to property, plant and equipment of an organisation. It also includes the requirements of ASA 701 that includes key audit matters of this particular auditing standard.

Question 1

a. Identifying and explaining two key assertion of risk in inventory

Audit assertions includes different for performing test along with companies policies and internal controls that are totally associated with the company. Financial statement of an organisation includes ledger, journal and other financial statement of the company. The case that has been mentioned includes Advanced Computer Solutions Limited, which has audited their financial statement on 30th June 2018. As per Carey (2015), risks that are associated within the company includes package that has experienced high level of returns for owing problems in their overall software. The company has expected their total inventory turnover ratio that is around 5.4 in the year 2017 and around 3.8 in the year 2018. Audit of each financial statement has been performed along with group of similar accounts using cycle approach. Moreover, account balance assertion are considered along with classes of transactions that are associated with balance sheet and accounts of income statement for a certain period of time. Risk of material misstatement has been identified for applying appropriate process that are used in overall process of auditing.

Assertion of risk in inventory includes account balances that are usually associated with balance sheet of a particular company. Advanced Computer Solutions Limited moves their closing inventory to a new warehouse, which is located at different location. According to Carson et al. (2016), the company has inventory in hand that has been represented around 26 % of total amount of sales in the financial year 2018 and around 18 % of total amount of sales in the year 2017. It includes existence of account balances that includes assets and liabilities that are associated with the company. It also includes rights, which mainly holds the control rights of the associated assets and liabilities. Account balance assertion is considered along with classes of transactions that are associated with the statement of financial position of the company. These assertions helps account balances to audit themselves in overall auditing process along with uncollectible receivables that are associated with the company and inventory which are physically present in the selected warehouse. These assertions of risk in inventory also include key audit matters that are associated with the company in overall process of auditing.

b. Identifying and describing two substantive audit procedure for performing at each risk that are identified

Substantive procedure is important for an organisation to examine their assets and other items that are totally associated with the company. It is particular process that consists of test which mainly includes creation of conclusive evidence along with disclosure of rights and valuation of inventory. Inspired from the viewpoint of Edgley et al. (2015), inventory acts as an asset in an organisation that are conducted by an auditor after a certain period of time. It mainly gives large number of inventories that are associated with an organisation in their overall audit process along with a proper reason. Cut off analysis is a type of substantive audit process in which appointed auditors of an organisation would examine the procedures of halting for further receiving of warehouse at the time of counting of physical inventory. In this scenario, items of inventory that are extraneous in nature are to be excluded from the overall process for better evaluation of inventory that are included in their normal course of business. The appointed auditors test those shipping transaction before physical count of inventory along with the transactions that are associated with the business of the company.

Classes of transactions include occurrence and completeness among which occurrence mainly analyses the transactions that has been recorded actually in a business. On other hand, completeness checks all transactions that have been occurred in the business along with some events, which are recorded in their books of accounts of an organisation. Klumpes et al. (2016) has stated that the company has inventory in hand that has been represented around 26 % of total amount of sales in the financial year 2018 and around 18 % of total amount of sales in the year 2017. Advanced Computer Solutions Limited moves their closing inventory to a new warehouse, which is located at different location. It also includes sales revenue transactions that mainly include actual shipments, which are made to real customers along with investment income that has been properly excluded for the earned revenue or sales in their normal course of business. Auditing of these risk associated procedure might includes auditing procedures which includes occurrence test of the inventory transaction that has been taken as sample addition of inventory for including them in purchase acquisition of the company.

c. Explaining the requirement of ASA 701 for communicating key audit matters for this particular auditing standard

Auditing standard of Australia mainly deals with responsibility of the appointed auditors for communicating with key audit matters in the overall audit report. It is mainly intended to address the judgement of an auditor for analysing the overall process of audit report in a particular financial report. This particular ASA 701 act as a substitute of disclosure in the financial reports that are presented by the appointed auditors of the company. In the viewpoint of Kowaleski et al. (2018), this particular financial reporting framework requires some management to address the tendency of auditing standard that are totally associated with the nature of business of an organisation. It has different requirements in which key audit matters has been determined in the overall process of auditing that helps in the process of communication which are charged with governance. It also includes those matters that are required for the overall process of auditing that has been taken into consideration for determining auditing standard that acts as a communicating key. The auditor of an organisation mainly checks the areas of risk that are associated with risk of material misstatement which are mainly identified for the ASA 315.

Judgement of auditor in a significant area which are related to the areas of financial reporting along with including it in the judgement of significant management. It also includes estimates of accounting that has been identified with high estimation of audit uncertainty. The company has expected their total inventory turnover ratio that is around 5.4 in the year 2017 and around 3.8 in the year 2018. Audit of each financial statement has been performed along with group of similar accounts using cycle approach. Lenz & Hahn (2015) has mentioned that some risks that are included with the company includes package that has experienced high level of returns for owing problems in their overall software. There are some effects that are based on the effects of significant of audit on the financial reports that are prepared for a particular period of time. The appointed auditors of the company include matters that are determined with the overall process which are according to standard of auditing along with their key audit matters.

Question 2

a. Identifying and explaining two key assertion of risk that are related to property, plant and equipment

It is important to include audit procedure as it includes each procedure that are associated with assertion tested along with audit procedures that mainly consist of major steps. Each step of audit procedures is mainly performed to examine the financial statements assertions along with identification of overall procedures. Based on the viewpoint of Seguí‐Mas et al. (2015), the prepared financial statements are mainly used by the appointed auditors along with different types of potential misstatements that might occur in their normal course of business. It includes completeness, which mainly points out the transaction that has already taken place in their business. The case that has been mentioned includes Advanced Computer Solutions Limited, which has audited their financial statement on 30th June 2018. The company has expected their total inventory turnover ratio that is around 5.4 in the year 2017 and around 3.8 in the year 2018. It also includes all assets and liabilities that are associated with the company along with equity interest and reserve capital that has been disclosed in the financial statements of the company in a particular financial year.

The occurrence and valuation of asset includes the transactions with events and others matters which has been recorded for taking part in an organisation. Valuation and allocations of plant, property and equipment has to be included in financial statements of the company, which has to be reported in a particular financial year. It also includes accuracy that relates to the amount of transactions and events that has taken place in their normal course of business. Identification of audit procedures includes some accounting procedures and techniques that are totally associated with assets of an organisations. Moreover, the market value has been appreciated that has not been recorded for significant decrease in assets, which are also known as impairment of plant, property and equipments. Sethi et al. (2017) has opined that most of the business organisation use capitalisation method that is mainly used for thresholding the evaluation process that are incurred in their overall process. It mainly includes primary property assertions, property walkthrough, primary risk of property and others. These assertions helps account balances to audit themselves in overall auditing process along with uncollectible receivables that are associated with the company and inventory which are physically present in the selected warehouse.

b. Identifying and describing two substantive audit procedure for performing at each risk that are identified

Risk that are associated with plant, property and equipment has been identified by different types of audit procedures in which inquiry process and observation process that has been encountered for describing these audit procedures. In the viewpoint of Simnett & Huggins (2015), inquiry process mainly dealt with inquiring of accountants that are associated with related management for the matters mainly found by the respective auditors. Some of the auditors inquires management in the business process along with their financial transactions that are associated with the company. The financial transaction that has taken place in their normal course of business has to be recorded for controlling major parts in a business organisation. It is also one of the most important audit procedures that are mainly used in different stages of audit procedures. Appointed auditor of an organisation might inquire management at the stage of planning as they might help in confirming the consignment at the end of the work of audit with its total amount of liabilities.

Audit procedures for plant, equipment and property includes overall process of observation that is mainly used to obtain the overall understanding along with gathering audit evidence for the real process. Some specific business has different purpose in which this particular audit procedure mainly confirms the process to the clients along with physical confirmation. It mainly used for obtaining audit evidence for making their own projections that would be used for the overall purpose of comparison. As mentioned by Soh & Martinov-Bennie (2015), the appointed auditors test those shipping transaction before physical count of plant, property and equipment along with the transactions that are associated with the business of the company. In this particular procedures, confirmation of audit procedures are not up to their clients along with the available inventories for confirming them with their particular clients. Auditing of these risk associated procedure might includes auditing procedures which includes occurrence test of the inventory transaction that has been taken as sample addition of inventory for including them in purchase acquisition of the company. It also includes counting procedures for confirming the current amount of plant, property and equipments and sometimes auditors would confirm them for counting of fixed assets that are associated with the business in their normal course of business.

c. Explaining the requirement of ASA 701 for communicating key audit matters for this particular auditing standard

This particular auditing standard mainly describes the key audit matters along with proper auditor’s report, which are prepared after a certain period of time. Some matters that are associated with professional judgement of an auditor are coined as key audit matters, which is one of the most significant items in preparation of financial reports. Based on the viewpoint of Seguí‐Mas et al. (2015), these particular matters are mainly addressed to the context of audit along with opinion of the appointed auditor for separate context in these matters. The appointed auditors of an organisation required to communicate with the matters that that helps in reporting to the appointed manager of an organisation that has been included with ASA 705 along with results of the overall matters.

Each key audit matters have to be described that includes references with related disclosures in the financial reports of the company. The appointed matters have to be considered with significance in the overall process of auditing that has to be mentioned in the total process. It also includes laws and regulation that includes disclosures about the matters of the organisation, which mainly includes report on the matters with the overall standard. According to Carson et al. (2016), it can be seen that the company has identified another risk that are associated with calculations of depreciation of buildings, plant and machinery along with fixtures fittings and equipments. Each of these assets has been depreciated with certain percent on the basis of straight line method.

Conclusion

From the study mentioned above, it might be concluded that auditing and assurance services in inventory has been discussed in this study through which key assertions that are related to inventory. Audit of each financial statement has been performed along with group of similar accounts using cycle approach. Risk of material misstatement has been identified for applying appropriate process that are used in overall process of auditing. It includes existence of account balances that includes assets and liabilities that are associated with the company. It also includes sales revenue transactions that mainly include actual shipments, which are made to real customers along with investment income that has been properly excluded for the earned revenue or sales in their normal course of business. It mainly gives large number of inventories that are associated with an organisation in their overall audit process along with a proper reason. This particular ASA 701 act as a substitute of disclosure in the financial reports that are presented by the appointed auditors of the company. There are some effects that are based on the effects of significant of audit on the financial reports that are prepared for a particular period of time.

Reference list

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