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
Assertions at Risk...................................................................................................................2
Substantive Audit Procedures................................................................................................3
Requirements of ASA 701.....................................................................................................4
Rationales for Key Audit Matters..........................................................................................5
Disclosure of Key Audit Matters...........................................................................................5
Green Machine Ltd....................................................................................................................6
Assertions at Risk...................................................................................................................6
Substantive Audit Procedures................................................................................................7
ASA 701.................................................................................................................................7
Rationales for Key Audit Matters..........................................................................................8
Disclosure of Key Audit Matters...........................................................................................8
Conclusion..................................................................................................................................9
References................................................................................................................................10

2AUDITING AND ASSURANCE SERVICES
Introduction
At the time of providing the audit clients with the auditing and assurance services, the
primary responsibility that the auditors have is scrutinizing the accounting books and
accounting records of the audit clients in order to make sure that there is not any material
misstatements in them that can affect the decision-making process of the company’s key
stakeholders like shareholders, suppliers and others (Byrnes et al. 2018). In the process of
auditing, the auditors have the responsibility to undertake the testing of many aspects related
to the clients’ financial statements and one of them is audit assertions that the management
team of the clients use for the preparation and presentation of the financial statements. As per
the description of the audit assertions, they are the open or inherent declarations made by the
clients’ managements for the preparation and presentation of the financial statements. The
main reason behind the use of assertions is to ensure the appropriateness and correct
disclosure of the financial information through the financial statements (Green and Zhou
2013). It is required for the auditors of the companies to test that whether the assertions are
correctly used by the management team as there is a chance of the creation of audit risks due
to the inappropriate use of the audit assertions (Hay, Knechel and Willekens 2014). In case
the audit assertions are at risk, the auditors are needed to determine whether they are the key
audit matters as per ASA 701. The objective of this report is the examination of the audit risk
assertion from the given scenarios.
Advanced Computer Solutions
Assertions at Risk
Accuracy and Valuation: As per this assertion, inventory transactions are free from error
when they are accurately valued. For this reason, the companies are needed to take two major
initiatives (Knechel and Salterio 2016). First, they are needed to accurately value the physical

3AUDITING AND ASSURANCE SERVICES
inventory figure; second, they must ensure that correct amount of inventory flows from the
balance sheet to income statements in the form of cost of goods sold. Hence, the accurate
valuation needs to be ensured. Physical inventory count process can be troubled when the
whole inventory base is moved to one place to another place or places and the same aspect
can be seen in Advanced Computer Solutions (Wood, Brown and Howe 2013). The reduction
in the inventory turnover can be due to the fact that there was some errors in the physical
inventory count process. Hence, this assertion can be regarded at the risk.
Cut off: According to this assertion, the companies are needed to ensure the correct reporting
of the inventory transactions; it means the transactions are needed to be recorded at the
proper dates (Titera 2013). The receiving as well as suppliers documents of inventory assist
the companies in doing this. It states that it is wrong when the inventory of current year
includes the inventory of previous year as this aspect indicates towards incorrect valuation of
inventory. The given scenario of Advanced Computer Solutions states that the inventory in
hand of 2018 includes 26 percent sales of 2018 and 18 percent sales of 2017. The main
reason for this can be the return of the best-selling computers of the company due to the
presence of software problems (AICPA 2017). At the same time, the inventory valuation
process of the company includes significant judgements and estimated from the management.
Thus, this assertion can be considered at risk.
Substantive Audit Procedures
As a part of this particular audit assertion, it is needed for the auditor to observe the
processes under the physical inventory count in the methodical manner (Cannon and Bedard
2016). In this process, the auditor needs to obtain full understanding of the strengths and
weaknesses of the internal control for inventory count process. The auditor is needed to
observe the inventory counting process when it is being carrying out. After that, it is needed
for the auditor to ensure the verification of the all inventory count tags in. Lastly, the auditor