Auditing and Assurance Services

Running head: AUDITING AND ASSURANCE SERVICES
Auditing and Assurance Services
Name of the Student
Name of the University
Author’s Note

1AUDITING AND ASSURANCE SERVICES
Table of Contents
Introduction................................................................................................................................2
Advanced Computer Solutions..................................................................................................2
Key Assertions at Risk...........................................................................................................2
Substantive Audit Procedures................................................................................................4
Case of Green Machine Ltd.......................................................................................................5
Key Assertions at Risk...........................................................................................................5
Substantive Audit Procedures................................................................................................6
ASA 701 Key Audit Matters......................................................................................................7
Requirements..........................................................................................................................7
Causes for the Selection of the Key Audit Matters................................................................8
Disclosure of Key Audit Matters as per ASA 701 Key Audit Matters..................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

2AUDITING AND ASSURANCE SERVICES
Introduction
Auditing requires the auditors to inspect and examine their clients’ financial
statements with the aim to discover material misstatements in them, if any (Louwers et al.
2015). In the whole audit process, the responsibility on the auditors is the verify the
truthfulness of the assertions used by the clients’ management team as these assertions play a
critical role in the preparation and presentation of the financial reports; and risks in these
audit assertions can lead to create material impact on the clients’ financial reports (Hay,
Knechel and Willekens 2014). It is the obligation on the Australian auditors to adhere to the
principles and standards of ASA 701 Communicating Key Audit Matters in the Independent
Auditor’s Report (ASA 701) at the time to analyze and examine the used assertions. This
report shows the analysis and examination of key audit assertions at risk while considering
the provide situations of Advanced Computer Solutions Limited (Advanced Computer
Solutions) and Green Machine Ltd. This report also considers the analysis of the
requirements and usefulness of ASA 701 for the reporting of Key Audit Matters.
Advanced Computer Solutions
Key Assertions at Risk
The presence of two assertions can be seen in Advanced Computer Solutions related
to inventory which are at the risk; and the discussion is shown below:
Completeness
While valuing the company’s inventories, the assertion of completeness is regarded as
a crucial one. This assertion states that the company’s management is accountable for
accurately maintaining the records of all inventory valuation related transactions in the proper
section of the financial statements. There can be risk of material misstatements when the
inventories are understated (Kharisova and Kozlova 2014). For instance, in case the staff of

3AUDITING AND ASSURANCE SERVICES
one company does not record the inventory after purchase takes place, it can lead to material
misstatements. According to the provided scenario in the case of Advanced Computer
Solutions, the inclusion of 26% sales in the year 2018 and 18% sales in the year 2017 can be
seen in the inventory in hand in the year 2018. It indicates towards the possibility of the
involvement of the responsible employees in incorrect inventory valuation for the year 2018
and thus, the sales of the previous year have been included in the current year. It shows
inappropriate accounting of inventory in Advanced Computer Solutions (Kharisova and
Kozlova 2014).
Accuracy
The managements of the audit clients use the assertion of accuracy while valuing their
business inventory. The important role of this particular assertion can be seen to spot the
incorrectness as well as errors in the processes of inventory management. According to the
rule of this assertion, the employees of the company are accountable for ensuring the proper
computation of business inventory along with ensuring the correct physical count of their
inventories with the aim to correct statement of inventory value in the financial reports
(Antonio 2014). According to the provided information about Advanced Computer Solutions,
the company moved their business inventory from a central warehouse to six different
warehouses in the month of March 2018. Hence, it might happen that the responsible
employee for inventory counting made some mistakes while counting the inventory in the
warehouses that led to the decrease in inventory turnover to 3.8 times in 2018 from 5.4 times
in 2017. In the presence of this reason, this particular assertion can be considered as risk in
the company (Antonio 2014).