Auditing and Assurance for Advanced Computer Solutions and Green Machine Ltd

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student
Name of the University
Authors Note
Course ID

1AUDITING AND ASSURANCE
Table of Contents
Introduction:...............................................................................................................................2
Case facts of Advanced Computer Solutions Ltd:.....................................................................2
Key Assertions of Risks:........................................................................................................2
Substantive Audit Procedure:.................................................................................................4
Cost of Green Machine Ltd:.......................................................................................................5
Key Assertions at Risks:........................................................................................................6
Substantive Audit Procedure:.................................................................................................7
Key Audit Matters (KAM) under ASA 701 Key Audit Matters................................................8
Objectives:..................................................................................................................................8
Definition:..................................................................................................................................8
Requirements of Determining Key Audit Matters:....................................................................9
Benefits of the ASA 701 Key audit matters:..............................................................................9
Reasons for Selecting the Key Audit Matters:.........................................................................10
The situation for Advanced Computer Solutions Ltd:.........................................................10
The situation of Green Machines Ltd:.................................................................................11
Disclosure of Key Audit Matters under ASA 701 Key Audit Matters:...............................12
Conclusion:..............................................................................................................................12
References:...............................................................................................................................13

2AUDITING AND ASSURANCE
Introduction:
Auditing is referred as the procedure of assessing and inspecting the financial reports
and books of records of an organization with the objective of assuring that transactions are
free from any material misstatements. While performing audit, the auditors should review the
assertion used by the management in preparation and presentation of the financial
statements1. The assertion of audit is regarded as the undeclared or observable statements that
the management assertion can be very severe to form a material effect on the financial
reports. For this purpose, the auditor’s responsibility remains in assessing the assertions to
locate any presence of risks.
In Australia, the auditors are required to follow the guidelines and regulations stated
under “ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report”
as it represents the process for the auditors to deal with the risks of assertion in order to
account in the auditor’s report2. The purpose of this report is to assess the diverse dimensions
of risks assertion and key matters of audit from the provided situations.
Case facts of Advanced Computer Solutions Ltd:
Key Assertions of Risks:
As evident from the situation of Advanced Computer Solutions Ltd there are two
management assertions of risks which are as follows;
1 Hayes, Rick Stephan, Hans Gortemaker, and Philip Wallage. Principles of auditing: an
introduction to international standards on auditing. Prentice Hall, Financial Times, 2014.
2 Whittington, Ray, and Kurt Pany. "Principles of auditing and other assurance services."
(2014)

3AUDITING AND ASSURANCE
Completeness: Completeness is referred as the noteworthy assertion so that a business can
value its inventories. According to this assertions, the managements of organizations are
under obligation of reporting the records of the transaction in order to value the inventory of
financial reporting. Therefore, understatement of inventory can result in risk assertion. For
instance, risk assertion arises when the accountable person fails to keep record of the
inventories in spite of the purchase3. Ineffective or weak internal control can contribute to the
risk of assertion. The information provided by the advanced computer solutions defines that
the inventory in hand for the business in 2018 accounted for 26% of sales during 2018 and
18% in 2017. The accountable personnel should include the incorrect inventory valuation
which resulted in inclusion of previous year sales in the present year. This aspect adds
considerably to the imperfect handling of inventory for Advanced Computer Solutions.
Accuracy: For valuing business inventory, accuracy forms the vital assertion which an
organization management may make. Accuracy helps in playing vital role in recognizing the
appropriateness and in any involvement of errors in the management of inventory4. The
obligation of assertion assigns responsibility on the concerned personnel to make sure that the
correct computation and physical count of inventory in order to accurately value the
inventory flow to the important financial reports. As evident from the information provided
by the Advanced Computer Solutions the company transported the inventory to six new
regional warehouses from its central warehouse during March 2018.
3 De Paula, Frederic Rudolf Mackley. The principles of auditing a practical manual for
students and practitioners. Isaac Pitman & Sons, Ltd (1919), 2016.
4 Louwers, Timothy J., et al. Auditing & assurance services. McGraw-Hill Education, 2015.