Audit Assertions, Procedures, Internal Controls and Reports

This study material from Desklib covers topics such as audit assertions, procedures, internal controls and reports. It includes information on testing existing assertions, two audit procedures for testing assertions, the importance of internal controls, key controls and tests of control, and types of audit reports. References are also provided.

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By student name
Professor
University
Date: February 17 , 2018.
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Contents
Question 3…………………………………………………………………........................................................3
Question 4…………………………………………………………………………………………………………………….…4
Question 5………………………………………………………………………………………………………………..………5
Question 6………………………………………………………………………………………………………………..………6
Refrences.....……………………………………………………………...........................................................8
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3.
Assertions Account Balances Justify your choices
a. The assertion that the
auditor is testing is
occuarnce
It relates to the sales account
and the total revenue that the
company has earned
The management of the
company might be motivated to
overstate the revenue of the
company.
b. Completeness It relates to the inventory
balance of the client
In case of audit trail, tracing
helps in identifying the overall
source of the accounting
records and helps in identifying
whether all the related
products, materials and supplies
that should have been included
are there in the records.
c. Existence and
Occurrence
It relates to the accounts
receivable balance of the
company
This is done to judge the
existence and genuiness of the
accounts receivable recorded by
the company.
d. Cut off Analysis It relates to the accounts
payables of the client
It helps in identifying whether
the accounts payable were
genuinely recorded and the
client has not understated the
same (Alexander, 2016).
e. Existence and Occurrence It relates to the accounts
receivable and the provision of
doubtful debts accounts.
It helps in identifying the overall
provision of debts that must be
recorded and tracing of the
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credit documents helps in
reducing the overall collection
efforts of the company.
4. Two audit procedures that will help in testing the existing assertion-
• Inventory
Check the physical count of the inventory – The auditor can conduct the physical count of the inventory
to check whether the inventory stated in the books are correct or not. It helps in asserting the
completeness of the books of accounts, and helps the auditor to conduct a check on the internal
controls employed by the management for effective management of the inventory.
Reconciling the inventory count to the general ledger – This will help the auditors in analysing whether
correct amount is recorded in the books or not, on the basis of the invoices that the auditor has at
present.
• Accounts Receivable
Matching the receivables invoices to the shipping log – This will help the aduitors in examining whether
the invoice dates matches to the shipment dates and also to conclude whether sales are being recorded
in the accounting period in which they are incurred.All the invoices post the accounting period can be
examined to keep a check whether the same has been recorded in the prior period.
Examing through the customers – One of the major procedure to judge the viability of the accounts
receivable balance is to ask the customers directly. This will help in major confirmation whether correct
balances are recorded in the period . The auditors can ask the customers to confirm the unpaid balance
at the end of the accounting period.
b) Internal controls refer to the policy and programs of the company as per which the management
operates to ensure the maximum efficiency of the work that is being done within the company. In this
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given case the auditors were given an indication that the overall internal controls of the company were
not reliable, therefore the auditor had to perform extensive audit procedures to judge the same. In case
the internal controls are strong enough, the auditor can depend upon the same for the validity of the
accounts but it does not let go of the responsibility of the auditor in asserting the true and fair view of
the accounts of the company and thus even though the internal controls are in place and very active, the
auditor needs to validate the same from his end.
5)
Key Control Test of Control
Segregation of Duties The cash collection and recording happens in
four different stages that includes receiving,
depositing, recording and reconciling. It is
important that segregation of duties must be
there in this procedure and no single person
should be allowed to all this work. In the
given case Sharon does all the work related
to cash collection and recording and hence it
is important that proper segregation of duties
is there to ascertain responsibility (Guragai,
et al., 2017).
Documentation It is a very important test of control and
hence it is necessary that proper
documentation is done of all the cash
receipts and it must be updated daily and
proper sequence must be followed in relation
to the same. This will help in identifying any
frauds. Tensor limited should adopt such a
practice and make sure that proper sequence
wise recording of data is being done.
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Surprise Checks It is important that companies should go for
surprise check on a timely basis, as it will help
in establishing proper security and help in
assertion of any fraud elements. It will also
keep a check on the employees. Tesor limited
should go for such checks to assert the
validity of the internal control system with
relation to the collection of the cash (Burke &
Clark, 2016).
6)
Audit Report Reason
a. Adverse Opinion This kind of audit report is given when the
auditor of the company identify a major material
misstatement in the books of record of the
company which may be an indication of fraud by
the company.. In case of Santa Ltd, the books of
the company were not properly maintained,
many information were missing and till the end of
the year the same was not resolved. Hence the
auditor should give a adverse opinion, because
the auditor is not having accurate data related to
the financials of the company. And the books of
the company do not matches with the balance
provided in the financial statements.
b. Modified Opinion This kind of audit report is issued when the
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auditors of the company finds certain
misstatements in the books of the company
which may not effect the present data but have
significant impact in the future. This states that
the financial statements of the company are
correct , but there are certain points that needs
to be highlighted.In the given case there was a
misstatement with relation to the property plant
and equipment and no proper accounting policies
were followed by the company in valuation of the
same, but apart from that the accounts were
accurate. Hence the auditor of the company
should give a modified opinion.
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References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Burke, J. & Clark, C., 2016. The business case for integrated reporting: Insights from leading
practitioners, regulators, and academics. Business Horizons, 59(3), pp. 273-283.
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), pp. 617-632.
Guragai, B., Hunt, N., Neri, M. & Taylor, E., 2017. Accounting Information Systems and Ethics Research:
Review, Synthesis, and the Future. Journal of Information Systems: Summer 2017, 31(2), pp. 65-81.
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