Auditing And Assurance Services

Running head: AUDITING AND ASSURANCE SERVICES
Auditing and Assurance Services
Name of the Student
Name of the University
Author’s Note

1AUDITING AND ASSURANCE SERVICES
Table of Contents
Introduction................................................................................................................................2
Question 1: Advanced Computer Solutions...............................................................................2
Answer to [a]..........................................................................................................................2
Answer to [b]..........................................................................................................................3
Answer to [c]..........................................................................................................................4
ASA 701 Communicating the Key Audit Matters..............................................................4
Rationales for Determination.............................................................................................5
Disclosure of Key Audit Matters.......................................................................................5
Question 2: Green Machine Ltd.................................................................................................6
Answer to [a]..........................................................................................................................6
Answer to [b]..........................................................................................................................7
Answer to [c]..........................................................................................................................8
ASA 701 Communicating the Key Audit Matters..............................................................8
Rationales for Determination.............................................................................................9
Disclosure of Key Audit Matters.......................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

2AUDITING AND ASSURANCE SERVICES
Introduction
The prime responsibility of the auditors can be found in the examination as well as
analysis of the financial statements of the companies in order to ensure the fact that there is
not any material misstatements in them as a result of errors and frauds; and the key
stakeholders of the companies use the report of the auditors to verify the fairness and
truthfulness of the company’s financial statements (Bédard and Courteau 2015). At the time
of the development of these financial statements and reports, the managements of the audit
clients use certain assertions. Audit assertions are the implicit or explicit claims along with
certain representations that the managements of the clients make for the preparation of
financial statements concerning its appropriateness of various financial statements elements
and disclosures. Managements of the companies use different audit assertions for inventory,
property, plant and equipment and others; such as accuracy, valuation, cut off, completeness,
existence, occurrence and others (Knechel and Salterio 2016). At the time of auditing the
clients’ financial statements, it is essential for the auditors to consider examining these audit
assertions with the aim to verify the truthfulness of the used judgements and assumptions by
the managements for the preparation of financial statements. After that, they need to
determine the Key Audit Matters in case the risks have significance in auditing (Louwers et
al. 2015). This report sheds light on the used assertion of the given companies from the
perspective of an auditor for the determination of key audit matters.
Question 1: Advanced Computer Solutions
Answer to [a]
Accuracy/Valuation
At the time to test this audit assertion, the two significant matter faced by the auditors
are to provide the necessary assurance on the correctness of all the values and figures of

3AUDITING AND ASSURANCE SERVICES
physical inventory count and to provide assurance on the aspect that correct amount of
inventory has come as cost of goods sold in the income statements from the balance sheet
(Stagg et al. 2018). For these reasons, accuracy or valuation of inventory needs to be tested
by the auditors. The case study of Advanced Computer Solutions shows that the inventories
of the company are transferred to six new regional warehouses and this incident can lead to
the miscalculation in the physical inventory count which can reduce the inventory turnover in
2018. In addition, issues in software can cause error in the inventory valuation process (Ma
2016). These reasons states that this assertion is at risk.
Cut Off
It is needed for the managements of the audit clients to ensure proper recording of the
values of inventory in the correct accounting period when they take place. Considering
examination of the shipping and receiving documents of inventory is a crucial aspect as it
assists in cut off of inventory (Bumgarner and Vasarhelyi 2018). Hence, the companies
cannot record the value of inventory of past year in the accounting book of the present year.
However, this aspect can be seen in case of Advanced Computer Solution as the inventory of
the year 2018 consists of the sales of both 2018 and 2017. This event is the proof that there is
an error or errors in the recording of inventory in the correct year’s accounting books. It can
also be happened that the problem in software might lead to this issue or any staff is
responsible for the same (Kharisova and Kozlova 2014). Hence, it is evident that this
assertion is at risk.
Answer to [b]
Substantive Audit Procedure 1: For addressing this risk, the main audit procedure is the
methodical surveillance of every aspect of the physical inventory count procedure of
Advanced Computer Solutions (Glover, Prawitt and Drake 2014). Certain initiatives that the