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
Question 1..................................................................................................................................2
Requirement [a]......................................................................................................................2
Requirement [b].....................................................................................................................3
Requirement [c]......................................................................................................................4
Question 2..................................................................................................................................5
Requirement [a]......................................................................................................................5
Requirement [b].....................................................................................................................6
Requirement [c]......................................................................................................................6
Conclusion..................................................................................................................................8
References..................................................................................................................................9

2AUDITING AND ASSURANCE SERVICES
Introduction
Auditing is considered as a process of inspecting and examining the financial
statements of the companies in order to make sure they are free from material misstatements.
One major responsibility of the auditors is to test the assertions used by the managements of
the audit clients as there can be risks in these assertions (Louwers et al. 2015). These
assertions can be regarded as the explicit or implicit claims of the clients’ management team
for preparing and presenting the financial statements in the true and fair manner. This report
aims at analysing the case studied of Advanced Computer Solutions and Green Machine Ltd
with the aims to assess the assertions that are at risk. The step of this report is to suggest these
companies the appropriate substantive audit procedures that can be applied for minimizing
these assertion risks.
Question 1
Requirement [a]
Accuracy: This is an important assertion that helps in determining whether the inventory
valuation process has been done accurately or not. It indicates towards the responsibility of
the managements to accurately conduct the physical inventory count process as error in this
can lead to the reduction in the inventory turnover ratio of the firms due to the count of less
number of inventories. Inventory turnover ratio helps in showing how many times a company
has sold or cleared the inventory during a particular period. Decrease in inventory turnover
ratio in Advanced Computer Solutions from 5.4 to 3.8 implies that the company has not been
able in selling or clearing their inventories in at the same speed in 2018 as compared to 2017.
The decreasing trend in inventory turnover suggests that there can be fluctuations in the
inventory of the company that can cause overstatement or understatement of inventory.
Advanced Computer Solutions has moved their inventory in six different warehouses and

3AUDITING AND ASSURANCE SERVICES
there can be error in the physical inventory count process at those warehouses which caused
reduction in inventory turnover ratio 5.4 to 3.8. Hence, this assertion is at risk ( Knechel and
Salterio 2016).
Cut Off: This assertion is also crucial as it helps in showing whether the inventories have
been recorded at the correct date of correct period. It can be seen from the case that inventory
in hand of 2018 includes sales of 2017 and 2018 and it may be due to high level of returns.
As per the cut off assertion, company cannot include the previous year’s inventory in the
current year. For this reason, it is needed to test this assertion as this assertion at risk in the
company (Wood, Brown and Howe 2013).
Requirement [b]
For addressing the assertion at risk of accuracy, the substantive audit procedure for
the auditor is the careful observation of the physical inventory count processes of Advanced
Computer Solutions at all the six warehouses. Under this process, the auditor needs to take
certain audit strategies; such as discussion of the procedures and policies of physical
inventory count with the responsible employees, verification of all physical inventory count
tags, testing the company’s process for determining the cost of goods sold and examination as
well as verification of the used judgments and accounting estimates of the management for
the physical inventory count process (Glover, Taylor and Wu 2016).
For addressing the assertion at risk of cut off, the substantive audit procedure of the
auditor is to check and verify whether all the inventory related transactions have been
recorded at the proper date of proper period. For this, it is needed for the auditor to confirm
the inventory transaction documents related to goods received at warehouses, goods delivered
to suppliers and the documents for goods return from the customers. The auditor also needs to