Audit and Assurance in Australia

The report is designed to provide an idea about the responsibilities of an auditor to perform the audit of the given case. The report has the two cases one on Advanced Computer Software Ltd. And Green Manufacture Ltd. The report has discussed the key audit matters that is being addressed by the auditor. The analytical procedure performed by the auditor to assess the risk and how the matter shall be addressed.

Running head: AUDIT AND AUSSRANCE IN AUSTRALIA
Audit and Assurance in Australia
Name of the Student:
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Author Note:

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Executive Summary:
The report is designed to provide an idea about the responsibilities of an auditor to perform
the audit of the given case. The report has the two cases one on Advanced Computer
Software Ltd. And Green Manufacture Ltd. The report has discussed the key audit matters
that is being addressed by the auditor. The analytical procedure performed by the auditor to
assess the risk and how the matter shall be addressed.

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Table of Contents
Introduction................................................................................................................................3
Discussion:.................................................................................................................................4
Advanced Computer Solution Limited..................................................................................4
The two key assertions connected to inventory:................................................................4
Audit Procedure.................................................................................................................4
Green Machine Ltd................................................................................................................5
The two main assertions at risk related to PPE..................................................................5
Audit Procedures................................................................................................................6
ASA 701 Key Audit Matters..................................................................................................7
Key Audit Matter of Advanced Computer Solution Limited.............................................8
Key Audit Matter of Green Machine Ltd...........................................................................8
Conclusion................................................................................................................................10
Reference:................................................................................................................................11

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Introduction
According to Accounting Standards, the auditor is enable to have a set of rules so that
the overall determination on the misstatement could be addressed properly. The misstatement
that is present in the fiscal statement and how to overcome it as per their nature. The
procedures are helpful to risk of the material misstatement at the reliable level of assertion.
The procedure that is been provided in the standard helps the auditor in planning the
analytical procedure as well as tests regarding the operating efficiency of control, as per the
requirement, second analytical procedure, whose feature, period, and extension are matching
with the components of assertion. Also this standards asks the auditor for further planning of
audit based on the assertion. In obtaining the sufficient audit evidences auditor needs to
evaluate them. The standards provide guidance to auditor on how to evaluate the risk and is it
appropriate or not. Even the evidences obtained for audit is appropriate for audit or not. The
standards even provide the guidance for documenting.
As per ASA 701, gives the overview about the responsibilities of auditor in
communicating the key audit matters that is being stated in the audit report. The matter is
about the communication that the auditor needs to address as well his verdict on the
communication. The sole purpose of communicating the matters is to uplift the value of
auditors report through high level of transparency on the performed audit. The audit key
matters helps the user of financial report to understand the area on which judgement of
auditor is held responsible in a professional manner.

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Discussion:
Advanced Computer Solution Limited.
The two key assertions connected to inventory:
 Completness of inventory: In the given case of Advanced Computer Solution Limited.
The inventory mentioned as the closing balance in the year of 2017 was 5.4 times it
reduced to 3.8 in year 2018. It reflected as the reduction in the closing value of the
inventory.
 Accuracy: The inventory in hand recorded in the financial statement of Advanced
Computer Solution Limited represented 26 percent of the total sales in 2018. But in
2017, it was only 18 percent of sales. This clearly indicates the risk that is associated
and the urgent attention of the auditor. (Alles et al., 2018).
Audit Procedure
Auditor shall perform the analytical review on the inventory in order to recognize the
unreasonable occasion or else the transaction that is related to inventories that includes the
slow movement, the low and high amount of inventory that is been identified as unreasonable
including the wrong adjustments done against the transaction. This analytical review will
help auditor to have the better picture to perform additional review to that the risks related to
inventories more efficiently. Advanced Computer Solution Limited record inventory under
asset. Therefore, the auditor needs to audit the risk associated with inventory as mentioned
above the two assertion regarding it. The audit procedure that auditor may follow are:
 Test inventory in transit.-Advanced Computer Solution Limited has moved its
inventory from a central warehouse to six new regional warehouses in March 2018.
There shall be unreasonable count at the time of loading the inventory. Here, auditor
needs to check the documentation that is related to the transfer. Auditor shall also

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verify the document filed or prepared by the warehouse of other regions. In order to
frame a transparent opinion auditors could was review the documents related to
shipping.
Assessing the value of Inventory: the auditor shall review the value of inventory. The
method of allocating the cost and the polices of accounting that has been applied for
the valuation. Reviewing the cost if there, that is not been allowed by IAS 2 and is
included in the cost of inventory. If required auditor shall create obsolete inventory if
required. The auditor shall also check the historical cost pattern of inventory.
(Kharisova, and Kozlova, 2014).
Green Machine Ltd
The two main assertions at risk related to PPE
 Classification- as there persist incorrect information about the revenue as well as
expenditure identified by the auditor. This generated the miscommunication among
the stakeholders as the incorrect recording had led in increase in profit margin. If the
capital expenditure is recorded under the revenue expenditure the accounts that are
been affected is expenditure account itself, depreciation as well as asset account. This
will led to increase the expenditure balance decreasing the asset. If the inappropriate
occurs in the revenue expenditure in this account cash balance would reflect. Even
capital assets account is affected as it is depreciated on a regular basis. This
understates the cash balance. Therefore determining the correct as well as appropriate
classification of expenditure is needed in regard to PPE. This could also impact the
accounting policies.

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 Occurrence and Accuracy- depreciation has not been correctly calculated. This may
be due to the factors relating such as not properly applying the accounting policies,
calculation error, may be either the assessment regarding the useful life that is been
left of an asset is not calculated properly. Somewhere, valuation model is not being
followed.
In the given case the rates that is applied to the assets are very low. But the market
rate for depreciation ranges to as per the policy for Building 2 to 4 percent, plant and
machinery 5 to 10 percent, and fixtures, fittings and equipment is 5 to 20 percent all
on the basis of straight line depreciation method. (Kharisova, and Kozlova, 2014).
Audit Procedures
 Verification of PPE- the verification of PPE can be done physically. The auditor is
liable to check the records of the transaction with the support of document evidence
also evaluating the internal control. The principal responsibility of the auditor is to
evaluate physically. For determining the cost of the whether it is capitalised, or the
model used of valuation and the method depreciation and is appropriate or not in
accordance to the accounting policy. As per the AS the duty of the auditor is to
ensure that the asset has been capitalised by Green Machine Ltd. According to the
component approach. A component or part of an asset that is important in value as
compared to the sum of the asset or to its useful life that is not alike from the asset
that has been capitalised differently.
 Revenue and Expenditure: There are types of different of internal control that are
related to the expenses . There are invoices that require signature at certain level.
Some require contracts on a written basis. The auditor shall evaluate the expenses that
are paid. To evaluate the internal control. The auditor shall recommend the solution
where he finds any suspicious inside the control body that provoke the concerned the

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employee in misuse the paying process. Expenses shall be acknowledged in an
appropriate method. The preceding thing an enterprise needs is for expenditures to be
twisted in for somewhat that happened a year or three ago. An extensive period hole
brands it firmer for the company to create sure the expenditures are genuine and
sensible. The past bill, the harder it is to safeguard it is genuine. (Alles et al., 2018).
A reasonableness check includes examination expenditures to understand if the
company are in stroke through what is careful ordinary. A further sensibleness stage is to
mark indisputable that only expenditures that are essential are experienced. (Kinney,
Martin,. and Shepardson, 2013).
ASA 701 Key Audit Matters
The matters in an auditor verdict is most of the important in the process of audit of
fiscal statement in a particualar period on which the audit has been conducted and the period
has shown the vital assessed risk of material misstatement whether or not due to fraud or
other matters that has been recognized by the auditor is considered as the key audit matter. In
ASA 701, the Key Audit Matter (KAM) is being indentified as the matter where auditors`s
professional judgement of an auditor is of utmost important in the prsentation of the financial
statement by the committtee in the current period. As per ASA 701, it is mandatory for audits
of entire set of General Purpose of Financial Report for those companies that is being listed
including voluntary apllications. In case of auditors for piblic interst entities required to
address the Key Matter Audit as per

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Key Audit Matter of Advanced Computer Solution Limited.
To review the accounting policies of inventory notes to accounts of the financial statement
can be referred along with the forecasting including hypothesis of ambiguity relating to the
valuation of inventory respectively. The inventory has been measured at a loss of ten percent.
The inventory in hand has been high as compared to last year. The closing inventory has also
been decreasing in the year. However, valuation of inventory has been one of the key audit
matter.
Key Audit Procedures- as discussed in the analytical substantive procedure the areas
that includes the following to verify the reasonableness of evaluation of inventory valuation
assessed by Advanced Computer Solution the, key audit procedures comprised going through
the steadiness of accounting policy, examining the Company’s inventory of advanced years
reports, analysing the alteration of inventory aging, along with finalization of the inventory
aging reports inclusive of concluding the inferior cost or net realizable value. For the
inventory of sample the auditors performed weighted average cost calculation in order to
compare with the weighted average cost of the last purchased invoices. On a basis of sample
net realisable value was tested by current selling prices of inventory.
Key Audit Matter of Green Machine Ltd
Revenue Recognition

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The audit team assessed the accurate recording of the transaction and the same has
been recorded in the financial statement. This is an inherent risk because the companies
billing cycle is a complex as well as involve long process. Important judgement from the side
of management to determine the exact measurement along with recognition of the nature of
the transaction. The auditor identified revenue recognition as the key audit matter because
revenue is known as the key performer indicator as it involves complex IT system.
Organisation decision together of that give growth to an inherent risk that income could be
logged in the inappropriate dated or might be question to influence to meet goals or
opportunities.
The audit procedure followed by the auditor to address the matter is reviewing the
bills that are being issued to the consumers and checking the same with the trade receivables,
along with the cash receipts. Rechecking of the balances of the trade receivables. Advances
that are made by the consumer. Reconciling the fiscal statement. Reviewing the revenues that
is being allocated among the concerned. Examining the journals on revenue account and
matching particulars of these periodicals accesses with pertinent causal documentation that
comprised facility contracts as well as development intelligences.( Backof, Bowlin, and
Goodson, 2017).
PPE- the key matter of audit relating to PPE is deprecation. For this, there are
numbers of areas that require judgment regarding carrying value as well as depreciation. The
determination that cost meet the level of capitalization. Work of construction is in progress is
transferred to PPE as well as the depreciation commences. Estimating the useful life along
and the salvage value of PPE. We recognised the carrying value of property, plant and
equipment as a key audit matter since of the high equal of management decision involved and
since of its importance to the financial statements.

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The audit procedures to measure the carrying value of PP&E included the following: •
measuring the proposal, application along with functioning efficiency of key internal controls
completed the comprehensiveness, presence as well as accurateness of property, plant and
equipment, counting the key internal controls finished the approximation of useful economic
lives as well as residual values. evaluating, on a example basis, budgets exploited through the
year by associating the costs exploited with the applicable fundamental documentation, that
comprised purchase contracts as well as proof of purchase, along with measuring whether the
costs exploited met the pertinent measures for capitalisation that comprised associating
interest rates to loan contracts, the control of interest capitalised in building-in-progress.
Stimulating the date of transporting building-in-progress to PP&E by investigative the
examination reports. Assessing administration’s approximation of valuable financial lives as
well as outstanding morals by making an allowance for our information of the commercial
and performs accepted in the widespread manufacturer industry. (Karadag, 2015)
Conclusion
The report is about the audit and assurance relating to the matter of assertion. The
essay has been divided into two part as two different case is being discussed. The case
discussed about identifying the assertion and the audit procedure for it. Auditor is being
guided as how to proceed the audit on the concerned matter addressing the key audit matter.
Regarding the items of balance sheet. The report discussed the details on the audit procedure
as per the accounting standard. An explanation about how auditor shall proceed attaining the
concern for assurance. Compliance of ASA 701, the key audit matter is being discussed. The
report has being framed to point out the importance of the Key Audit matters.

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Kharisova, F.I. and Kozlova, N.N., 2014. Applying the category of «Assertions (or
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