Auditing and Assurance Services Name of the University Author's Note

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
Question 1: Advanced Computer Solutions...............................................................................2
Requirement a: Assertions.....................................................................................................2
Requirement b: Substantive Audit Procedures......................................................................3
Requirement c: ASA 701.......................................................................................................4
ASA 701 Communicating Key Audit Matters....................................................................4
Determination Rationales...................................................................................................4
Required Disclosure...........................................................................................................5
Question 2: Green Machine Ltd.................................................................................................6
Requirement a: Assertions.....................................................................................................6
Requirement b: Substantive Audit Procedures......................................................................7
Requirement c: ASA 701.......................................................................................................8
ASA 701 Communicating Key Audit Matters....................................................................8
Determination Rationales...................................................................................................9
Required Disclosure...........................................................................................................9
References................................................................................................................................12
Appendices...............................................................................................................................15
Question 1: Advanced Computer Solutions
Requirement a: Assertions

2AUDITING AND ASSURANCE SERVICES
Accuracy or Valuation: Testing of this assertion helps in showing whether there is any error
in the inventory transactions or not. The auditors is needed to test the correctness of the
values of physical inventory; and they need to test whether the same amount of inventory
comes to the income statements from the balance sheet as cost of goods sold (Smieliauskas,
2013). Moreover, it is needed for the companies to record the inventories in lower of cost and
net realizable value in the financial statements. The companies need to ensure their adherence
to the standards and principles of AASB 16 for the accurate valuation of the inventories. The
inventories of Advanced Computer Solutions have been moved to six regional warehouses in
March 2018. For this reason, there can be the possibility of error in the process to physically
counting the inventory in the new warehouses. In addition, it is likely that the correct amount
of inventory has not come to the income statements from balance sheet as cost of goods sold
and these reasons can decrease the inventory turnover in 2018. Moreover, it is likely that the
management of Advanced Computer Solutions has not recorded the inventory at the lower of
cost and net realizable value which can lead to material misstatements in inventory. It is also
probable that the company has not followed AASB 116. Hence, this assertion is at risk
(Dowling and Leech, 2014).
Cut Off: The examination of this assertion shows whether the inventory transaction have
been recorded in the correct financial period. For this, the auditor must test all the receiving
as well as shipping documents with the aim to verify whether the transactions have been
recorded in the correct period (Tan, 2015). It restricts the companies to record the previous
year’s transaction in the current year. As per the provided information of the company, the
inventory of the current year includes both the sales of the current and previous year. This
particular aspect indicates that there is error in the recording of certain inventory transactions
in the proper financial period. It is likely that the responsible staffs has wrongly included the

3AUDITING AND ASSURANCE SERVICES
previous year’s sale in the current year’s inventory which create risk. For the presence of
these reasons, this assertion is at risk (Hussain and Al-Mourad, 2014).
Requirement b: Substantive Audit Procedures
First Risk: The requirement for the auditor is to observe and test the procedures include
under the physical inventory counting process. Specifically, the auditor must scrutinize the
physical inventory counting process when they are being progressing and they need to
examine the inventory count tags (Council, 2014). Most importantly, the auditor must involve
in the testing of the inventory in the six regional warehouses and needs to compare the results
with the confirmation from the central warehouse with the aim to find the error. In addition,
the auditor is needed to verify whether the company has followed the principles and standards
of AASB 116 for the accounting of their inventories. Lastly, the auditor must test the costing
process of the company to ensure the correct flow of inventory in the income statements as
cost of goods (Council, 2014).
Second Risk: With the aim to test this audit assertion, the auditor need to ensure the testing
of all the goods received to warehouses and goods delivered to suppliers notes so that the
errors in the cut offs can be identified (Seidel, 2014). The auditor must involve applying the
required analytical procedures for identifying the irrationality in the recording of inventory
transactions as the result of this can shows the problem area to the auditor. Lastly, any halt
request in inventory receiving from the warehouses needs to be tested for the exclusion of
irrelevant inventory items (Seidel, 2014).
Requirement c: ASA 701
ASA 701 Communicating Key Audit Matters
Definition: As per ASA 701, Key Audit Matters are the matters that are largely significant
for the audit of the financial statements of the current year (auasb.gov.au, 2019).