Audit Procedures and Assertions for Inventory Valuation, Cash and Foreign Exchange Risk

ANSWER 1 (A) and (B)
INHERENT
RISK
JUSTIFICATION ASSERTION AND
LEDGER ACCOUNT
IMPACTED
AUDIT PROCEDURE
Inventory –
Valuation
(Woolworths
Official
Website,
2018)
As per the annual report of
the company, Inventory on
30June 2018 amounts to $
4233 million which counts
approximately 18% of the
total assets. The company
has the wide range of
products and services and in
the year of 2016, worth
mentioning, that the
company has written down
the inventory of BIG W
business at a large value
suddenly therefore, the
inventories of the product
shall be valued at net
realizable value instead of
cost. Although the company
has calculated the net
realizable value as net of
selling expenses but it has
been not been detailed in the
report. Thus, because of the
high amount of inventory
and size of the business, the
company is prone to risk.
Following are the
assertions
Accuracy in the valuation
of inventory.
Completeness of
accounting of Inventory
Valuation of closing
inventory.
Following are the
impacted ledger
accounts:
Inventory
Sundry Creditors /
Accounts Payables
Purchases
Sales / Revenue
Following audit procedures
shall be adopted:
The company shall ensure
the system in place to have
the physical verification of
inventory on periodical
basis and give report to the
management.
The purchases shall be
verified with the entries
made in the books of
accounts along with the
invoices and purchase
orders.
On verifying the purchases
and conducting the
physical verification of
inventory it is necessary to
have the verified all the
documents pertaining from
the date when it is entered
in factory and till the date
it is converted to finished
goods.
Utilization of
the Cash and
Its Balance
(Ruhnke,
2014)
Cash is regarded as one of
the most important assets of
the company as it helps in
running day to day functions
of the company. As on the
30th June of 2018, the
company has the cash and
cash equivalents amounting
to 1273 million dollars. As
the company is into retail
sector and has the long chain
of customers who purchases
the goods from the company
on daily basis and in cash.
Following are the
assertions:
There are large chances
of having the inaccurate
balances of cash and cash
equivalents
Completeness of all cash
transactions whether the
same have been taken
into account or not.
Completeness and the
Following audit procedures
shall be adopted:
System should be in place
for physical verification of
cash on periodical basis
and reporting the
discrepancies noticed to
the management.
Balance confirmation
certificate shall be
obtained from the banks
and the parties so as to

The cash balance is liable to
be many dangerous threats
which include the cash fraud
by the accountant, theft,
robbery or embezzlement in
any manner and so on.
Therefore, the ash balance
shall be taken care off.
accuracy of the recorded
and unrecorded cash
sales
Reconciliation of ledger
accounts with the parties
balance confirmation
along with their ledger
accounts.
Following are the
assertions impacted
ledger accounts
Cash
Bank
Sales
Accounts Payable
Debtors
Expenses
reconcile the balances with
the books of accounts.
Verifying the each invoice
of sale and purchase with
the books of accounts and
verifying that whether
related cash payments and
receipts have been
recorded or not.
Risk of
having loss
due to
fluctuations
in the Foreign
Exchange
Currency
The company has its head
office in Australia and
operates in New Zealand as
well. As and when the
company enters into
transactions where the
payment or receipts have to
be done in the currency other
than the functional currency
then the risk of having the
gain or loss arises.
Following are the
Assertions:
The translated foreign
currency shall be
accurately recorded.
Completeness shall be
ensured in recording all
book entries.
Following are the
impacted ledger
accounts:
Cash
Bank
Following audit procedure
shall be adopted:
The currency rates adopted
by the company for each of
the transactions shall be
verified by the rate as
envisaged on a daily basis
by the statutory regulating
authorities.

Foreign Exchange Gain
Foreign Exchange Loss
Assets – depending upon
the circumstances and
facts.
Liabilities - depending
upon the circumstances
and facts.
Foreign Currency
Translation Reserve
ANSWER 2
Analytical Reviews are conducted either through the ratio analysis or the trend analysis. It helps
in ensuring that the audit planning has been done in the correct manner.
ANALYITICAL
REVIEW –
COMFORT
IDENTIFIED
JUSTIFICATION ASSERTION AND
LEDGER
ACCOUNT
IMPACTED
AUDIT PROCEDURE
Earnings
Valuation
(Woolworths
Official Website,
2018)
The company has higher
profit for the year under
consideration amounting to $
1795 million and that has
occurred due to the increase
in the turnover of the
company. The profitability
of company has created the
doubt because of the higher
increase in the cost of sales,
branch expenses and
administration expenses due
to which the profit has been
increased from 2.90% to
3.16% of sales relating to 5%
increase in sales.
Following are the
Assertions:
Cost of Sales has been
increased.
Branch Expenses have
been increased.
Administration
Expenses have been
increased.
Following are the
impacted Account
Balance:
Branch Expenses
Administrative
Expenses
Sales
The sales and the
expenses shall be verified
as entered in the books of
accounts with the
invoices and the bills and
related supporting
evidence.
The nature of the expense
shall also be checked
whether any personal
expenses have been
entered in the books of
accounts.