Auditing and Assurance Services

This report discusses the risks involved in auditing and implementing the required audit procedures for appropriate disclosure. It covers two case studies, Advanced Computer Solutions and Green Machine Limited, and their significant audit matters.

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

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Table of Contents
Introduction:....................................................................................................................................2
Answer to Question 1: Advanced Computer Solutions...................................................................2
1.1 Significant declarations at risk related to inventory:........................................................2
1.2 Practical audit procedures for each identified risk:...............................................................4
1.3 Necessity of ASA 701 Communicating Key Audit Matters:.................................................4
1.4 Rationale for selection of key audit matters:.........................................................................5
1.5 Documentations relevant with ASA 701:..............................................................................5
Answer to Question 2: Green Machine Limited..............................................................................6
2.1 Noteworthy considerations at risk associated to PPE:...........................................................6
2.2 Practical audit procedures for each identified risk:...............................................................7
2.3 Need for audit procedures for each identified risk:...............................................................7
2.4 Main considerations selection of key audit matters:..............................................................8
2.5 Documentations relevant with ASA 701:..............................................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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Introduction:
Audit is referred as the process with the help of which the responsibility is dependent on
the auditors relating to the implementation of logical methods in recognizing the material
misstatements in the financial statements (Knechel and Salterio 2016). The auditors are
accountable for keeping note of the time taken for performing the auditing work in an
organization by using the assertion for preparing the financial reports. These assertions are
treated as implicit or explicit claims by the management to develop and represent the financial
statements.
Under certain situations the auditors have to respond to the risks assertion based on the
material misstatement. The auditors are under the obligation of investigating the assertion to
determine whether they are having any significant risk. The auditors while performing are
required to adhere with the specific assertions and guidelines to determine the risks involved in
material misstatement. The current report is based on assessing the risks involved in the audit
and implementing the required audit procedures for appropriate disclosure.
Answer to Question 1: Advanced Computer Solutions
1.1 Significant declarations at risk related to inventory:
The current scenario of Advanced Computer Solutions states that the auditor can recognize the
two main risks assertion which is based on completeness and accuracy. The rationale for the
risks is given below;
Completeness:

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Inventory valuation is vital for any business. On the basis of the audit requirements, the
management are under obligation of maintaining the economic records associated to inventory
valuations (Mladenovic, Martinov-Bennie and Bell 2017). Besides this, incomplete information
would lead to understatement of inventory. In the current case there is a risks of material
misstatement given the responsible authorities fails to correctly link the information after
purchase. This may result in risk of internal control. The case study represents that Advanced
Computer Solutions recorded 18% sales with 26% sales of inventory in 2018. This represents
that there is a chance of incorrect valuation of contributing the sales in 2017. Therefore, there is a
significant risk related to the company.
Accuracy:
The procedure of performing inventory valuation is vital for the management of the
business to maintain the accuracy in financial reports. Because of such concerns, the business is
in the position of detecting the inappropriate techniques or errors made while valuing inventory
(Kamaruddin et al. 2017). The management of every business is responsible for performing the
physical count of inventory and recording it in the financial reports. This becomes for the
auditors in obtaining the right knowledge because of shifting the warehouse to six new locations.
The assertion associated to accuracy is helpful in recognizing the appropriate person that are
accountable for recognizing the errors while performing the physical count of inventory at the
declined rate of 3.8 in 2018 to the rate of 5.4 in 2017. Therefore, these combinations would help
the auditors in performing all the different rationale which would permit the auditor in
considering the particular risks assertion for the specified company.

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1.2 Practical audit procedures for each identified risk:
The auditors are required to perform the audit procedure for assessing risks. Similarly, in
case of Advanced Computer Solutions Ltd it is evidently noticed that the auditor has identified
the assertions relating to risks (Payne, Corey and Raiborn 2018). The current assessment of
Advance Computer Solutions states that accurate substantive audit process would help in
performing the physical count of inventory. This would enable the procedural inspection of the
overall procedure. This would enable the auditors to take the process for discussing the staff
responsibility that are responsible for conducting the inventory count as well as recognize the
weakness in the procedure following the close observation of the sample testing of the stock
errors. The company has published the data on March 2018 where it has shifted its six central
warehouse in all its six locations to match with the physical count of inventory.
Furthermore, a risk assertion is noticed relating to completeness. This process helps in
controlling the risks that must be performed by the auditors by indulging in the audit procedure
to determine the results of physical count of inventory against its values in the books of accounts
(Dunn and Sainty 2019). The auditors are responsible for recognizing the values of stock that is
obtained from the physical inventory count against the probable errors. On implementing the
audit procedure, the auditor would be able to acquire the information that would offer accurate
inventory valuation.
1.3 Necessity of ASA 701 Communicating Key Audit Matters:
The auditors must communicate the significant audit matters under ASA 701. These
standards are helpful for the auditors in numerous manners. The guidelines of ASA 701 permit
the auditors in maintaining the effective communication channel with the stakeholders and
government groups relating to the KAM discussion (Chaplin 2017). This would help in

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promoting the transparency and of financial reporting and would also improve the overall scope
of the auditors that requires paying additional attention relating to the quality of audit. It is also
necessary to adhere with the ASA 701 for the preparation of the financial reports. This would
help in improving the quality of auditing and introducing improved understanding of the
monetary reports.
1.4 Rationale for selection of key audit matters:
In context of ASA 701, important risks assertion for the organizations is referred with
reference to the Key Audit Matters based on the different reasons. Primarily, the existence of
material misstatement may create an effect on the risks that may impact the financial position
and effectiveness of the business (Kumar and Sharma 2015). This would additionally effect the
stakeholder’s transparency relating to the judgement for management of the inventory valuation
that may result in material misstatement. The key audit matters would help in supporting the
above stated discussions.
1.5 Documentations relevant with ASA 701:
As per ASA 701, the auditors can recognize the key audit matters that must be disclosed
in right way (Chaplin 2017). In context of the Advanced Computer Solutions sufficient
justifications forms necessary in selecting the key audit matters that would enable the business in
proceeding further with the substance of auditing and publishing the findings of the audit report.

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Answer to Question 2: Green Machine Limited
2.1 Noteworthy considerations at risk associated to PPE:
As per the given study risk assertions of the auditor for Green Machine Limited are listed
as follows:
Accuracy:
The companies need to carry out the relevant valuation for PPE. This will require the
management for improving the amounts related to PPE transaction shown in the books of
company. In addition to this, the company needs to also maintain the appropriate record for
revenue and capital expenditures. The analysis of the information pertaining to the case may be
depicted as per maintaining separate record pertaining to the expenditures (Pincham et al. 2016).
The management of the organization is depicted to be at fault for capitalising the revenue
expenses and at the same time integrating the repairs as per maintenance in the income
statement. The important assertions at risk due to this are listed as follows:
Valuation:
In general, the organizations need to proceed with the valuation of PPE as per recording
this value after deduction and disclosure pertaining to PPE. The guideline of such an assertion at
Green Machine Limited shall be able to record the cost valuation of PPE as per charging
depreciation with the deduction and disclosure pertaining to impairment and sales considered
with the PPE. The inclusion of such factor will be mandatory for the organizations in disclosing
the organizations for PPE standing in a fair and precise manner. As per the given case the lower
depreciation will be charged on the value of PPE which will be inappropriate. Due to the lower

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date of depreciation, there will be a significant impact on the financial report related to the
business entities (Berisha and Berisha 2016).
2.2 Practical audit procedures for each identified risk:
It is the auditor’s responsibility for conducting substantive and accurate process of audit
for the individual risk areas for Green Machine Limited. The previous assessment of the
company has identified that the company is not able to maintain a distinct record for capital
expenditure nor revenue expenditure. Due to this, the role of the auditors may be considered by
proceeding with a methodical reviewing of the organizations for capitalising the future expenses.
It is also important for the auditor in better understanding of the various types of the expense
which were improperly capitalised. It can be also discerned that the organization has not
implemented the relevant procedure for policy of the organization to replace the economic life
assessment of the assets (Ashour, Sukoharsono and Ghofar 2015).
2.3 Need for audit procedures for each identified risk:
The guideline for ASA 701 are stated pertaining to the auditors in order to assess various
KAM which will be helpful in forming a relevant audit opinion pertaining to the financial
statement. The procedure of ASA 701 has defined the issues which are essential for making
relevant assertion in the financial statement of the company to form a judgement of the auditor.
This is important for the auditor in declaring the important KAM pertaining to governance. The
understanding of ASA 701 specifies the different aspects of KAM. This standard makes it
essential for the companies in declaring the KAM which are to be depicted by the governance
team (Heenetigala et al. 2016).

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A clear understanding of the ASA 701 guideline is considered for ascertaining the KAM.
This standard has made it mandatory for the corporations to consider the areas of higher risk and
material misstatement as specified in the ASA 315. Moreover, the auditors are needed to review
the critical judgement for the developing and anticipating the contingencies (Al‐Shaer and
Zaman 2018).
2.4 Main considerations selection of key audit matters:
The case for Green Machine Limited, the detection of the risk assessment is important for
depicting the essential matters audit which are in compliance with ASA 701 for several reasons.
Firstly, the operating expenses for green machine may be affected due to depreciation of
expense. This inaccuracy may increase profitability of the organization at the same time
increasing scope of risk pertaining to material misstatement in the financial report. The given
situation as identified possible deterioration in the audit report as a result of capital and revenue
expenditures which may be having a negative impact on the profit of the firm (Ge, Simnett and
Zhou 2017).
2.5 Documentations relevant with ASA 701:
The statements given by Green Machine has suggested that the auditors are having the
liability for detection of the KAM which shall be able to ensure appropriate disclosure of the
financial statements. Furthermore, the consideration of this process has been further mentioned
as per ASA 701. The auditor is responsible for fetching the necessary information which are
significant for ensuring relevant disclosure of information which is followed as relevant process
of audit thereby ensuring that the risk assertions are under control (Soh and Martinov-Bennie
2015).

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Conclusion
The main risk assertion for Computer solutions is considered with completeness. This
process helps in controlling the risks that must be performed by the auditors by indulging in the
audit procedure to determine the results of physical count of inventory against its values in the
books of accounts. The guidelines of ASA 701 permit the auditors in maintaining the effective
communication channel with the stakeholders and government groups relating to the KAM
discussion. It needs to be further concluded that the existence of material misstatement may
create an effect on the risks that may impact the financial position and effectiveness of the
business. The case for Green Machine Limited has ascertained the risk assertion as per accuracy
and valuation. The companies need to carry out the relevant valuation for PPE. This will require
the management for improving the amounts related to PPE transaction shown in the books of
company. As per the given case the lower depreciation will be charged on the value of PPE
which will be inappropriate. Due to the lower date of depreciation, there will be a significant
impact on the financial report related to the business entities.

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