Auditing and Assurance Services for Inventory and Property, Plant and Equipment - Desklib

Auditing and Assurance Services

Table of Contents
Introduction......................................................................................................................................3
Question 1........................................................................................................................................3
Key assertions at risk with respect to inventory..........................................................................4
Substantive audit procedure in response to the identified risk....................................................5
Communication of the key audit matters in the Auditor’s Report...............................................7
Question 2........................................................................................................................................8
Key assertion at risk in relation to property, plant and equipment..............................................8
Substantive procedure in response to the identified risk.............................................................9
Communication of the key audit matters in the report of the auditor........................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

INTRODUCTION
Auditing standards are made by the Auditing and Assurance Standard Board, which is an
independent committee of the government of Australia. At the time of performing the audit, it is
mandatory for the auditors to comply with the all relevant procedures prescribed in the auditing
standard (Louwers & et al. 2015). It gives the guidelines to the auditor for carrying out the audit
procedure, which enhances the transparency, reliability and relevance of the financial statement.
Inventory and the plant, property and equipment are considered as the main element of the
financial statement (Kellenberg, and Levinson, 2016). The present study revolves around the
auditing standard 506, which is related to the “Existence and the valuation of the inventory”.
Along with this, all the matter which impacts the decision of the auditor significantly must be
communicated by the auditor to directors, senior management and those charged with
governance. The relevant guidelines with respect to the communication of the key audit matters
are provided in the auditing standard 701, “communicating key audit matters in the independent
auditor’s report”.
QUESTION 1
The Australian auditing standard describes the requirement and the implementation and other
evaluating material with respect the to the responsibility of the auditor when he/she undertakes
any assignment related with the audit of the financial statement, other historical financial
information, or a complete set of financial statement (Beasley and et al. 2018). It is the
accountability of the auditor to ensure whether the financial statement is prepared according to
the generally accepted accounting principle, the existence of the internal control system and their
compliance, verification of the assets and liabilities, whether value stated in the financial
statement reflects the true and fair value (Wright, 2016).
Value of the inventory significantly impacts the financial statement of any entity. At the time of
performing an audit, the auditor must apply the Auditing standard 506 “Existence and valuation
of the Inventory”. This standard provides the auditor regarding obtaining the sufficient
appropriate audit evidence with respect to the valuation and existence of inventory in the
financial statement. the auditor is responsible for obtaining the sufficient and appropriate audit

evidence with respect to the valuation as well as the presence of the inventory and identifies
whether it reflect in the financial statement properly (Auditing and assurance standard Board,
2002).
In the given study, at the time of audit of the company named as Advanced Computer Solutions
Ltd, while assessing the risk of material misstatement and determine the appropriate response
with respect to the inventory, auditor becomes aware of the many issues.
Key assertions at risk with respect to inventory
Audit assertion refers as the claim or the representation made by the management of the
company regarding the responsibility of the preparation of the financial statement along with the
appropriateness of the several elements in the financial statement and the disclosure (Huo, and
Zhang, 2017). Subsequently, the auditor has to apply these assertions at the time of considering
the probable types of misstatement that may happen and also at the time designing and
performing appropriate audit procedures. With respect to this, the most important assertion
related to the present scenario is described below –
Presences of the inventory
The value of the inventory which is stated in the financial statement is actually held by the
company. There are chances of disposed of inventory without being recorded in the financial
statement or inventory may be stolen by some person.
Valuation
The year-end inventory may not be recorded in the actual fiscal year. In the given study there is a
significant difference in the inventory turnover ratio, which is based on the closing inventory.
This may be possible because the company wrongly record the transactions related to the
purchasing and selling of the inventory on the last day of the year. Further, due to the software
problem high level of return experienced by the company, there is the risk of how the
management accounts for the return of the inventory. Appropriate provisions are made by the
company or not. Inventory related with the other company may be recorded along with the own
inventory. Along with this, too old inventory or the scrapped inventory also not identified by the
company and carried along with the good stock of the company.