Auditing and Assurance in Australia Auditing and Assurance in Australia Name of the University Author's Note

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. Two key assertions of audit risk related to inventory......................................................2
b. Describing the two important audit procedures pertaining to the risk identified in the
audit procedure................................................................................................................................3
c. Defining the requirement of including ASA 701 in the auditor’s report.........................4
Answer to Question 2..........................................................................................................5
a. Taking the relevant decision in explanation and assertion of the risk of intellectual
property intangible asset..................................................................................................................5
b. Description of the two appropriate procedure of audit which can be performed with
better response to the risk................................................................................................................6
c. Explanation of the requirement as per ASA 701 and its inclusion in the auditor’s report
.........................................................................................................................................................7
Conclusion...........................................................................................................................8
References............................................................................................................................9

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Introduction
The board of AUSB has been seen to be making the auditing standard of ASA 701 in
compliance with “Australian securities and investment commission act of section 227B”. The
similar nature of the independent standard setting is seen to be associated with IFAC. Typically,
the auditors are inferred to depict the matters which are associated to auditing in company. The
significant consideration of escalating risk is based on risk as per ASA 315 and matters
pertaining to material misstatement. The study has evaluated the risk of material misstatement by
determining the risk of inventory connected to the decisions taken by the Computing Solutions.
The computing solutions has been seen to be winning a recent tender of large government
department however as per the findings of the closing balance there has been several instances of
discrepancies which are associated to pose significant risk in auditing. There are mainly inferred
due to reducing balance of closing inventory and the decision of the company to move its
inventory from central warehouse to six new regional warehouses. The assertions of the auditing
have also referred to the case of audit at Beautiful Hair. In this case the study has identified and
explained about the two main assertions which are at risk associated to the intellectual property
intangible asset. The second section of the questions has been able to explain about the
substantive audit procedure which may be performed for addressing the identified risk aspects
(Carson, Fargher and Zhang 2016).
Answer to Question 1
a. Two key assertions of audit risk related to inventory
The given case of computing solutions has shown that inventory has reduced from 5.4
times in 2017 to 3.8 times in 2018. Moreover, it can be further seen that computing solution took

3AUDITING AND ASSURANCE IN AUSTRALIA
the decision of transferring the inventory from the central warehouse to six new regional
warehouses. In this context, inventory at hand was depicted with 26% of sales in 2018 and 18%
sales in 2017. It needs to be also stated that the company had recently won tender pertaining to
the supply of government department and also agreed that the supply of the items was 10% lesser
than the cost price (Mohan and Rajgoli 2017). The two key assertions at risk associated to this
context are listed as follows:
1. Closing inventory value risk with reduced turnover: It was agreed by Computing Solutions
for supplying the items 10% lower than the cost price. This is seen to be relevant despite of the
significant reduction of inventory from 5.4 times in 2017 to 3.8 times in 2018. However, the
company had planned to shift the inventory from the central warehouse to additional warehouses
in March 2018. This is seen to increase the overall operating cost of the inventory. This is further
regarded to posing a serious threat on the going concern of the company (McKee 2015).
2. Minimized value of inventory at hand: Based on the depictions made for the inventory at
hand it needs to be realised that there has been a considerable decrease in its value from 26% of
sales in 2018 to only 18% sales in 2017. The reduced value of inventory at hand is also
considered with the threat of posing risk of going concern (Australia and Australia 2015).
b. Describing the two important audit procedures pertaining to the risk identified in the
audit procedure
The process of auditing in general applicable for inventory is considered with different
types of techniques. This is inclusive of the various types of the procedures which are related to
the physical inventory count, reconciling the counting of inventory, cut analysis, proceeding with
the test of high value items and testing the items for the inventory in transit. The application of
general procedure of audit needs to be determined with following the valuation system depicted

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from FIFO and LIFO inventory valuation system (Kumar, Parthiban and Saravanan 2017). This
is also inferred with the valuation system as per the inventory ownership and inventory
allowances. The appropriate audit procedure and the response of the same in relation of the risk
are enumerated below as follows:
1. Test of WIP inventory: The adoption of the technique such as WIP inventory is seen to be
acting as the regulator for the percentage of completion of the manufacturing items. This
procedure will be conducive in determining the overall percentage pertaining to the items listed
under WIP. This is further seen to be beneficial for the company for improved tracking and
aiding to the issue of inventory value going down from 5.4 times in 2017 to 3.8 times in 2018
(Bunn, Pilcher and Gilchrist 2018).
2. Inventory overhead interpretation: It needs to be understood that in case the cost for the
overheads are seen to be applied as per verification of the ledger accounts then the same
treatment needs to be made for the sourcing the cost of overhead. This will be useful in the
determination of the abnormal costs included for testing the consistency and validity of the
closing inventory balance. The audit procedure in particular has been further related to the
various types of key assertions which are needed to be included in the audit assertions pertaining
to the risk of reducing value of inventory at hand (Bartnik et al. 2018).
c. Defining the requirement of including ASA 701 in the auditor’s report
The inclusion of the ASA 701 is depicted to be important for providing true and fair
opinion on the effects related to the adjustment of the inventory. This essential for asserting the
desired level of inventory which are in accordance with “Corporations Act 2001”. In various
forms of the other situations the audit opinion is focused with fair view of inventory which are in
compliance with the “Corporations Regulations 2001”. The scope of limitation of the auditor’s

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work is further considered with the audit entity. However, in such a situation there may be
significant nature of the limitations which are inferred with the inability of identify the physical
count of the inventory (Stagg et al. 2018).
Answer to Question 2
a. Taking the relevant decision in explanation and assertion of the risk of intellectual
property intangible asset
The main risk considered in relation to the intellectual property intangible asset are listed
as follows:
1. Risk of infringement of intellectual property audit: The risk of infringement of the audit is
seen to be based on the various types of the assertions which shows that shimmers was seen
to be using a special formula to create a product. Therefore, only the owner at Shimmer was
aware of the secret ingredients. Moreover, the documents for secret ingredient was held by
solicitor of Shimmer. In general, the intellectual property is depicted to be in conjunction
with developing the new products and particularly demonstrated with the risk of infringement
of the intellectual property rights. In this case the solicitor may clone the documents of the
secret formula and use it for private gain. This is needed to be reviewed by the audit
committee in order to ensure that the company is able to prevent any occurrence of such a
risk (Sarkar 2016).
2. Risk of Accuracy: The consideration of the risk of accuracy may be considered with
recognition of the intangible asset in the view point of asset acquisition which are in
accordance with accounting standard AASB 3. In this case the Beautiful Hair may be unable
to obtain the access the necessary material or rights for the employees. In addition to this,
there may be further problem for the processing the audit information as the ingredient was

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held by solicitor of Shimmer. Some of the other risk constraints are based on the significant
nature of the audit application for integrating the set of activities in the development stage
and they might not be having any outputs. The factors related to the IP are further considered
with the process applied to the inputs and processes. There may be an instance when there
can be discrepancy in the pursuing the audit output as per the AASB 3 and may not be
complying with the standard of AASB 701 (Drayson, Cranston and Krosch 2015).
b. Description of the two appropriate procedure of audit which can be performed with
better response to the risk
Gaining rights of special formula: In the given situation the intellectual property audit of the
limited scope may be essential for bringing change in the development of new law. The company
needs to be therefore look forward to gain the rights to secure the documents of the secret
formula. This may be beneficial for the company to prevent any instance of fraud conducted by
solicitor. The adoption of the such a risk strategy will be conductive for the company in
resolving the matters pertaining to the risk of infringement of intellectual property audit (Aobdia,
Siddiqui and Vinelli 2016).
Taking substantive measure to increase accuracy: In order to increase the valuation process
of audit as per ASA 701, there needs to be submission of the underwriting process of the
different types of IP. The company needs to proceed with the staged process for providing the
non-binding indication of the ideas which are limiting the indemnity of the self-insured retention,
and co-insurance. In case Beautiful Hair decides to follow the auditing standard of AASB 3 then
it needs to consider the essential elements such as input, process and output. The input element
will be conducive in gaining the necessary material rights from the solicitor. The processing
system should be monitored against documenting the conventions and rules which are essential
in accounting, proceeding with the administrative system and payroll system (Kruys, Huhndorf

7AUDITING AND ASSURANCE IN AUSTRALIA
and Miller 2015). The consideration of the output process will be further important in providing
the return in form of dividends. These seen to be applicable based on the process applied with the
providing the return in form of dividends and maintaining lower cost beneficial to the members,
owners and participants (Glover, Taylor and Wu 2018).
c. Explanation of the requirement as per ASA 701 and its inclusion in the auditor’s report
The consideration of the ASA 701 KAM for the consideration of risk of intellectual
property intangible asset needs to be focused with communicating the KAM and explaining the
differences in the audit as per ISA 701. This is seen to be in accordance with Australian
legislative environment and at the same time be able to maintain audit quality where AUASB
may be compelling in nature. The introduction of the ASA 701 may be reflected in the
enhancement of the reporting formalities which shall be useful in better evaluation of the
intangible assets which are treated as IP. The application of the ASA 701 will be reflected in the
AUASB commitment pertaining to the conformity of the recent enhancement which are made in
the audit report and developed by the IASB. Some of the main features of the ASA 701 needs to
be considered with communicating and mandating the secret formula document used by
Shimmer (Carson, Fargher and Zhang 2016). The company also needs to be make provisions for
the auditors so that they are able to enable the auditors of the other entities to deicide for
including KAM in the auditor report. The determination of the various types of the concepts
associated to auditing needs to be considered with matters of IP which are communicated with
governance and require significant attention of the auditor. It is also essential for thee auditor for
taking into account the areas of higher risk assessment which involve significant judgement of
the auditors. The communication of the KAM pertaining to the IP associated to the intangible
assets needs to be inferred as per the conidiations which are related to the determining the
significant matters in the audit report (Carson, Fargher and Zhang 2016).

8AUDITING AND ASSURANCE IN AUSTRALIA
Conclusion
The findings of the study have identified the two key assertions of audit risk related to
inventory can be identified int terms of closing inventory value risk with reduced turnover. It
may be clearly depicted that the inventory reduced from 5.4 times in 2017 to 3.8 times in 2018.
However, the company had planned to shift the inventory from the central warehouse to
additional warehouses in March 2018. Additionally, the company further decided to supply the
items 10% lower than the cost price. Furthermore, this is considered with the risk of both
material misstatements and going concern. The risk of the inventory is well-thought-out with
reduced inventory at hand is seen to be posing a similar threat. Two important audit procedures
pertaining to the risk identified have been suggested with test of WIP inventory and Inventory
overhead interpretation. The consideration of the first treatment is seen to be acting as the
regulator for the percentage of completion of the manufacturing items. This procedure will be
conducive in determining the overall percentage pertaining to the items listed under WIP. The
application of the inventory overhead is seen to be useful in the determination of the abnormal
costs included for testing the consistency and validity of the closing inventory balance. In the
second case the risk of infringement of the audit is seen to be based on the various types of the
assertions which shows that shimmers were seen to be using a special formula to create a
product. Secondly, the risk of accuracy may be considered with recognition of the intangible
asset in the view point of asset acquisition in accordance with accounting standard AASB 3. The
suitable audit procedure to mitigate such risk needs to be depicted in terms of the look forward to
gain the rights to secure the documents of the secret formula. This may be beneficial for the
company to prevent any instance of fraud conducted by solicitor.

9AUDITING AND ASSURANCE IN AUSTRALIA
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Bartnik, S.E., Copeland, S.P., Aicken, A.J. and Turner, A.W., 2018. Optometry‐facilitated
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Bunn, M., Pilcher, R. and Gilchrist, D., 2018. Public sector audit history in Britain and
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