Audit Assignment: Key Assertions, Substantive Audit Procedures, and Key Audit Matters

Audit Assignment

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By student name
Professor
University
Date: 11th Sep 2018.
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Audit assertion:
Audit Assertions are the representations made by the management about the various
items and information contained in the financial statements. These representations are about the
recognition, measurement and presentation of financial data. They are also known as
Management Assertions and Financial Statement Assertions (Alexander, 2016). Depending on
the item to which it relates to, these assertions are classified into several categories, namely,
occurrence, completeness, accuracy, completeness, existence, valuation, rights and obligation,
valuation, and classification. Primarily, the purpose of assertions is to assist the auditor in
understanding and resolving a wide range of issues. Assertions related to the balance sheet are
divided into four broad categories, namely, completeness, accuracy, valuation and rights and
obligation.
1 a) Key assertions at risk
Valuation: The Accounting standards require inventories to be recognized at an amount
which is the lower of the cost or net realizable value. It also requires that any abnormal wastage
has not been included in the valuation of the inventory. Valuation will also be complicated when
there is work in progress. Since Computing Solutions Limited, sell computer presentation
package, the chances of inventories becoming obsolete is very high. In the technology driven
industries, merchandise get obsolete and outdated within a short span of time. Therefore, their
value gets impaired each year, sometimes, each season too (Bromwich & Scapens, 2016).
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Rights & Obligation: This assertion is about the ownership and rights of the entity over
the inventory. This assertion can be at risk because Computing Solutions has a practice of
moving its inventory from the central warehouse to the regional warehouse, which is six in
number. As such, there are possibilities of instances where the goods are in transit or are held on
consignment basis. The ownership and rights in these instances have to be clearly understood
because of the involvement of outside parties like the insurance company, the transporter and the
consignee.
1 b) Substantive Audit procedures Substantive Audit procedures are procedures or steps that
the auditor performs to gather audit evidence for a matter. These steps are intended to gather
detailed and intensive information on significant matters. Usually, substantive procedures are
divided into three subheads. They are test of controls, test of details and analytical review
procedures. The nature, timing and extent of these procedures vary in accordance with the
strength and weakness of the internal controls operating in those specific area (Chron, 2017).
For valuation risk: The auditor should obtain a proper list of inventories from the
management and reconcile them with the general ledger. Proper application of lower of cost or
NRV shall be ensured, for this the auditor may take the help of market data too. The inventory
count is important audit evidence. Wherever possible, the auditor should frequently observe the
inventory count taking place, at least twice a year. Vouching and testing inventory pricing is
another method to obtain audit evidence. Special consideration should be given to the valuation
of closing stock as it is usually done at the year end and can be easily inflated or deflated as per
the needs of the management. Provisioning requirements for goods in transit or on consignment
basis shall also be reviewed (Fay & Negangard, 2017).
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