Audit & Assurance

Audit & Assurance

Table of Contents
Question 1........................................................................................................................................3
a) Identification and explanation of the two key assertions at risk in relation to inventory in the
context of Computing Solutions Limited........................................................................................3
(b) Description of two substantive audit procedures that should be performed for the
minimization of identified risks.......................................................................................................4
(c).....................................................................................................................................................6
Requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s Report................6
The rationale for this auditing standard ASA 701...........................................................................6
Key audit matters and rationale for the determination of those matters as key matters:.................6
Question 2........................................................................................................................................7
(a)Two key assertions most at risk in relation to the intellectual property intangible asset............7
Risk related to the improper documentation of Intellectual Property:............................................7
(b) Substantive audit procedure that could be used in response to each risk identified above........8
Limited purpose focused audit Procedure:......................................................................................8
(c) Requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s Report...........8
The rationale for this auditing standard ASA 701...........................................................................9
Key audit matters and rationale for the determination of those matters as key matters:.................9
Reference:......................................................................................................................................10

Question 1
a) Identification and explanation of the two key assertions at risk in relation to inventory
in the context of Computing Solutions Limited
The two key risks that can be identified in relation to the inventory procedures:
“Complicated year-end inventory valuation method”
There is some crucial information that is being acquired by the external auditor regarding the
audit procedure of the Computing Solutions Limited. Among the several crucial information the
information regarding the change in average inventory turnover from 5.2 times in 2017 to 3.8
times in 2018 points to the risk of “Complexity of the year-end inventory procedure”
Inventory turnover ratio demonstrates that how many times a company has sold and replaced
inventory during a period under consideration. The inventory turnover is calculated by dividing
the average sales by average inventory (Azim, 2013). The number of days that the business
organization is taking to sale those inventories is calculated by dividing the days of the period
under consideration by the inventory turnover of that period. Generally a high inventory turnover
ratio is preferred as it indicates that the business is highly efficient in selling the finished goods
inventories. But if the inventory turnover ratio of the business is extremely high then the ratio
indicates that the Company has making a very strong sales by offering the discounted prices to
the customers and therefore sales based on discounted pricing is not a demonstration of
efficiency of the company (Lubatkin, 2013).
Thus the whole process of assessing that how the business is managing the inventory is based on
the proper valuation of the inventory. If due to the complexity of the inventory valuation
procedure that arise due faulty mis-statement of materials the bushiness makes a wrong valuation
of the year end inventories then there is every possibility that the management will get a wrong
idea regarding the inventory management capability of the organization and on the basis of