Auditing and Assurance in Australia

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and Assurance in Australia
Name of the Student
Name of the University
Author’s Note
Table of Contents

1AUDITING AND ASSURANCE IN AUSTRALIA
Introduction..........................................................................................................................2
Answer to Question 1..........................................................................................................2
a. Identification and explanation of the two key assertions related to inventory................2
b. Identification and description of two important audit procedure which may be used to
perform in response to the risk identified........................................................................................3
c. Explanation of the requirement of ASA 701 Communicating Key Audit Matters in the
Auditor’s Report and the rationale for this auditing standard.........................................................4
Answer to Question 2..........................................................................................................5
a. Identification and explanation of the two main assertions at risk related to PPE........5
b. Identification and description of the of the two substantive audit procedures which
will be able to perform better in response to each risk................................................................6
c. Explanation of the requirement of ASA 701 Communicating Key Audit Matters in
the Auditor’s Report and the rationale for this auditing standard...............................................7
Conclusion...........................................................................................................................7
References............................................................................................................................9

2AUDITING AND ASSURANCE IN AUSTRALIA
Introduction
The “Auditing and Assurance Standards Board (AUASB)” is seen to make the
“Auditing Standard ASA 701” comply with “section 227B of the Australian Securities and
Investments Commission Act 2001”. The equivalent nature of the independent standard setting
is relevant to “International Federation of Accountants (IFAC)”. In general, the auditor is seen
to determine the various types of the matters associated to matters related to matters pertaining to
audit. Typically, the areas of increased risk are associated with material misstatement or
significant risk considered in accordance with ASA 315 (Auasb.gov.au 2019). The main
interpretations of the study are aimed to identify and explain the two important assertions at risk
in relation to “property, plant and equipment” as per the case study. Secondly, the study will
also show the description and identification of the two essential audit procedure and performing
the response to the individual identified risk. The report has further explained the requirement
pertaining to ASA 701 Communicating Key Audit Matters in the Auditor’s Report and the
rationale related to this was also stated in the auditing standard. Some of the other aspects of the
report has been also able to infer about the KAM thereby providing the complete rationale for the
determination. These indications are seen with the use of analytical procedures such as inventory
turnover ratio and relating the same with auditing procedures.
Answer to Question 1
a. Identification and explanation of the two key assertions related to inventory
As per the given case study, the inventory turnover of closing inventory reduced down
from 5.4 times in 2017 to 3.8 times in 2018. In addition to this, the advanced computer solution
was able to move the inventory from the central warehouse to six new regional warehouses. It

3AUDITING AND ASSURANCE IN AUSTRALIA
needs to be also seen that during the end of the year the inventory at hand showed 26% of sales
in 2018 and 18% sales in 2017 (Griffiths 2016). It is also stated that the company recently won a
tender for supplying large government department with several products however it agreed to
supply the items at 10% lesser than its cost price. The two main assertions at risk are listed as
follows:
1. Reducing closing inventory: Computing Solutions agreeing to supply items at 10%
lesser than the cost price despite of the inventory turnover of closing inventory reduced
down from 5.4 times in 2017 to 3.8 times in 2018. Moreover, it has also planned to move
its inventory from a central warehouse to six new regional warehouses in March 2018. It
will increase the operating cost due to inventory. This is considered as a serious risk
concerned with going concern of the firm (Knechel and Salterio 2016).
2. Reduction in inventory at hand: As per the analysis of inventory at hand, there was
26% of sales in 2018 and 18% of sales in 2017. This reduction in the inventory at hand is
also considered to pose a stern threat of going concern in the future (Louwers et al.
2015).
b. Identification and description of two important audit procedure which may be used to
perform in response to the risk identified
The general process of auditing applicable to inventory can range among several
techniques. This includes cut of analysis, observing the physical inventory count, reconciliation
of the inventory count to the general ledger, testing of high value items, testing of error prone
items and testing of inventory in transit. Some of the other general procedures of inventory
valuation system can range from inventory layers by use of FIFO or LIFO inventory valuation
system, inventory ownership and inventory allowances. In this particular case the two most
appropriate audit procedure to respond to the risk identified are listed as follows: