Auditing Case Study

This paper analyzes a case study of Computing Solution Limited and Beautiful Hair Limited to identify and address audit risks and procedures. It focuses on key assertions at risk, substantive audit procedures, and the requirements of ASA 701.

Running head: AUDITING CASE STUDY
AUDITING CASE STUDY
Name of the Student:
Name of the University:
Author Note

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Executive Summery
The objective of the paper is same in the both case provided that is Computing Solutions
Limited and Beautiful Hair Limited. The paper is entirely based on the identifying the risk
associated with both the firm to provide the appropriate responses to them in respect of the
audit and audit procedure. The report is prepared to analyse the provided cash study of
Computing Solution Limited and the Beautiful Hair Limited in auditing point of view.
Basically, this task is prepared to find the answers of the two given questions. The main
objective of this paper is to analyse the case study of the Computer Solution Limited and the
Beautiful Hair Limited to identify and ascertain the several related answers.

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Table of Contents
Introduction................................................................................................................................3
Computer Solution Limited........................................................................................................3
Key assertions at risk in relation to inventory........................................................................3
Substantive Audit procedures................................................................................................5
Requirement of ASA 701.......................................................................................................6
Beautiful Hair Limited...............................................................................................................7
Key assertions at risk in relation to intellectual property.......................................................7
Substantive Audit procedures................................................................................................8
Requirement of ASA 701.......................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
The report is prepared to analyse the provided cash study of Computing Solution
Limited and the Beautiful Hair Limited in auditing point of view. Basically, this task is
prepared to find the answers of the two given questions. The main objective of this paper is to
analyse the case study of the Computer Solution Limited and the Beautiful Hair Limited to
identify and ascertain the several related answers. The first part of the assignment tries to
identify key risks in relation to the intangible asset of the firm and to identify the audit
procedure that could be perform in response to every risk along with the requirement of ASA
701 which is for communicating the key audit matters in the report of the auditors. While,
another part of the report analysis the case study of Beautiful Hair Ltd. This part of the report
also analysis the case study of the Beautiful Hair Ltd to ascertain the answer of various audit
related questions. Here, the report identify the main risks associated with the intangible assets
of the Beautiful Hair and describes the appropriate audit procedure that can be perform in the
response to each risk along with the requirements of the ASA 701 communicating key audit
matters in the auditor’s report and the rationale for this auditing standards.
Basically the objective of the paper is same in the both case provided that is
Computing Solutions Limited and Beautiful Hair Limited. The paper is entirely based on the
identifying the risk associated with both the firm to provide the appropriate responses to them
in respect of the audit and audit procedure.
Computer Solution Limited
Key assertions at risk in relation to inventory
Inventory is one of the key asset in a company’s financial statements because this can
be collateral to the bank for the loan purpose as well as this can also be manipulated to
perform the fraudulent in the reporting of the financial performance of the firm. There are

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mainly four assertions are related to the inventory in respect of the most risks (Brandas,
Stirbu & Didraga, 2016). Those are existence, rights, completeness and valuation.
In the given case study of the Computer Solution Limited, the followings are the two
key assertion at risk in relation to the inventories: -
 Valuation and allocation
The first and the important key assertion at risk in relation to the inventories is the
valuation and allocation. The valuation refers to the correct pricing including the impairment
issues if any. Basically, assertion of allocation or / and allocation deals with the issue that
assets, liabilities, incomes or the expenses of the firm has been properly recorded or not
(Cordoş & Fülöp, 2015).
In the given case study, it is analysed that there is high chances of the valuation risk
assertion to the inventory as the inventory at the end of the year represented 26 per cent of the
sale this year while this was the 19 per cent last year. Secondly, the firm sign the agreement
with the Government to supply the computer at 10 per cent lower than the cost price. This
huge discount offered by the firm to the Government increases the chances of the risk of
valuation in the firm as how any firm can sell their product below the cost price. This
valuation indicates there are some issues related to the valuation of the inventory of the
Computer Solution Limited in respect to the current year.
 Existence
The second important key assertion at risk in relation to the inventories is the existence.
This is the risk which shows weather the reported inventory or the assets, liabilities, income
and expenses of the firm in their report is actually exist or not. Some time it has been notices
that the firm manipulated the information and shows the higher assets compare to the actual
which are not actually exists (Johnstone, Gramling & Rittenberg, 2015). This is done by the

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firm because of the various purpose like with the intention of getting loan from the banks and
the financial institutions or to attract the investors.
The chance of the existence risk with the inventory valuation of the Computer Solution
limited is high as per the provided case study. The first thing which indicates the valuation
risk in the inventory management of the firm is that the inventory turnover of the firm in
2019 is comparatively very low to the 2018 as the inventory turnover ratio of the firm stood
5.2 times in 2018 while this become 3.8 in 2019. While, the second thing is that the firm
moved its inventory from the central warehouse to the six new regional warehouse. This also
shows the risk of the existence in the firm as the firm does not discloses the how many units
are transferred to which regional warehouse.
Substantive Audit procedures
The substantive audit procedure is the procedure that analyse the case of the and
develop the conclusive evidence and proof in relation to the five audit assertions those are
existence, valuation, rights, disclosures and completeness (Kharisova & Kozlova, 2016).
Here, in the given case study the above two mentioned assertion are identified those
are valuation and existence. Hence, regarding the above two assertions the following the two
appropriate audit procedure which I follow in the case of the above to assertions: -
For valuation and allocation I will follow the following two procedures: -
 Analytical Procedure: - The first audit procedure which I follow to analyse the
valuation risk of inventory is the analytical procure. In this the first thing I will do is
to compare the gross margin of the firm with the figure of the previous year and the
secondly I will compare the inventory turnover ratio of the firm of current year with
the previous year (Mock & Fukukawa, 2015).

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 Tests the Balance’s detail: - The first audit procedure which I follow to analyse the
valuation risk of inventory is to test the all the balance of the inventories reported by
the firm with the actual inventory.
For existence I would like to follow the followings two procedures: -
 The inventory count: - The first audit procedure which I follow to analyse the
valuation risk of inventory is the inventory count (Sultana, Singh & Van der Zahn,
2015). The inventory count is very important to audit the existence of the inventory.
 Cross verification: - This the second procedure which I use to audit the existing risk
of inventory is the cross verification. After performing the count of the actual
inventory it is very important to cross verify the counted data with the data reported
by the firm.
Requirement of ASA 701
As per Para 9 of ASA 701, “the auditor must determine the matters required
significant attention from the auditor with those who are charged with the governance, while
performing the audit. Auditor must describe each of the key audit matters through appropriate
subheading, under separate section of auditor’s report. It shall be included under the head
Key audit matters”. Introductory language stated by this section is follows –
 “Key audit maters” are the substances those are as per auditor’s qualified judgement
are of most significance in audit of the annual report or the financial report presented
by the firm for the given period of the time, and
 “Key audit matters” are reported in situation of financial report audit as complete.
Additional, though starting the judgment on that by the auditor, the auditor does not
form any different belief about these problems (Auditing Standard ASA 701
Communicating Key Audit Matters in the Independent Auditor’s Report 2018).

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In the basis of the above of the requirements of the ASA 701, it is determined that the
key audit matter is that the return rate of the inventories is very high in the given case study
of the Computer Solution Ltd.
Beautiful Hair Limited
Key assertions at risk in relation to intellectual property
The intellectual property refers to the any creations of the mind, like artistic work,
literary and artistic works including design, music, formulation and likes. These must be
unique and no one other have the same thing (Dai & Vasarhelyi, 2016). Though, the
intellectual property does not appears in the balance sheet of the firm but this also equally
important for the firm and hence it also require proper implication of the accounting
procedure as this may increase the value of the firm.
Hence, this is also important to ascertain the risk associated with the valuation of the
intellectual property of the firm for the auditor to disclose the true valuation of the firm (Vale,
Branco & Ribeiro, 2016). Here, in the given case study of the Beautiful Hair Limited, the
followings are the two major assertions most at risk in the relation to the intellectual property
of the Beautiful Hair Limited: -
 Ownership
The first important key assertion at risk in relation to the intellectual property of the
Beautiful Hair Limited is the ownership. The ownership of the intellectual property measures
that who is the actual owner of the pierce of work. It has been notice that several times firm
wrongly claims that he is the owner of the some particular intellectual property while the real
owner of the asset is someone else (Sople, 2016). This done by the firm with the objective to
increase its value as well as the reputation.

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Here, in the given case study of Beautiful Hair Limited, it can be notice that the risk of
the ownership of the intellectual asset is very high as this intellectual asset is developed by
the owner of the Shimmer Pty Ltd and the formulation of the asset is only known to the
owner of Shimmer Pty Ltd itself (Osinski et al, 2017). While, the Beautiful Hair Limited
acquires that the business of the Shimmer Pty Ltd. Hence, this is not clear whether the
intellectual asset is register in the name of the owner or in the name of the firm.
 Occurrence
The first important key assertion at risk in relation to the intellectual property of the
Beautiful Hair Limited is the occurrence. This assertion of the risk analyses that the
transaction regarding the intellectual asset is occurred or not. In this auditor analysis that is
there any intellectual property is present or not and if yes that is present then the firm
properly perform the related transactions or not.
Again the given case study of Beautiful Hair Limited indicates the risk of the
occurrence. As the intellectual property is developed by the Simmer Pty Ltd as well as the
formula of the intellectual property is only known to the owner of the Simmer Pty Ltd (Al-
Sartawi, 2018). Though, the Beautiful Hair Limited acquire the Simmer Pty Ltd, hence this
needs to be found that the Beautiful Ltd made any payment to the Simmer Pty Ltd regarding
the ownership or the uses of the intellectual property or not.
Substantive Audit procedures
The following are the substantive audit procedure which I perform in the respect to
the above identified risk of the intellectual asset of the Beautiful Hair Ltd: -
For risk related to the ownership I will follow the below mentioned audit procedure: -
In terms of analysing the ownership of the intellectual property in the given case study
of the Beautiful Hair Limited, I will firstly analyse the registration of the asset to determine

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the in whose name the asset is registered (Rechtman & Gabriele III, 2016). Weather the asset
is registered in the personal name of the owner of the Simmer Pty Ltd or in the name of the
organisation. If the asset is registered in the name of the organisation then secondly, I will
analyse that is Beautiful Hair Limited have made any payment to the Simmer Pty Ltd as the
intellectual property is initially owned by the Simmer Pty Ltd at the time of acquiring the
firm or not (Carson, Fargher & Zhang, 2016). This analysis will clear all the related question
of the intellectual property like the initial owner of the intellectual property as well as the
current owner of the intellectual property.
For risk related to the occurrence I will follow the below mentioned audit procedure: -
To analyse the occurrence of the intellectual property I will analyse the financial
statement of both the firm those are Beautiful Hair Ltd and Simmer Pty Ltd to identify
weather any transaction related to the intellectual property is occurred between both the firm
or not. If there is no transaction has been made in between both the firm regarding the
intellectual asset property then there is high risk of occurrence is related with the intellectual
property of the given case study.
Requirement of ASA 701
As per Para 9 of ASA 701, “the auditor must determine the matters required significant
attention from the auditor with those who are charged with the governance, while performing
the audit. Auditor must describe each of the key audit matters through appropriate
subheading, under separate section of auditor’s report. It shall be included under the head
Key audit matters” (Miglani, Ahmed & Henry, 2015). Introductory language stated by this
section is follows –

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 “Key audit maters” are the substances those are as per auditor’s qualified judgement
are of most significance in audit of the annual report or the financial report presented
by the firm for the given period of the time, and
 “Key audit matters” are reported in situation of financial report audit as complete.
Additional, though starting the judgment on that by the auditor, the auditor does not
form any different belief about these problems (Auditing Standard ASA 701
Communicating Key Audit Matters in the Independent Auditor’s Report, 2018).
Here, the key audit matter in respect to the given case study, as per the requirement of
the ASA 701 which is related to the communication of the key audit matters is that the
intellectual property intangible asset has been recognized.
Conclusion
Lastly, the paper concludes that the Computer Solution Ltd have valuation and the
existence as the key assertion most at risk of its inventory. The suggested audit procedure for
those risk assertion are analytical procedure and testing of balances for the valuation risk and
inventory count and cross verifying for the existence risk of the inventory. While, the
Beautiful Hair Ltd have the key assertions mostly at risk for the intellectual property of the
firm are ownership and occurrence. The audit procedure for this risk is to analyse the each
and every financial details of both the firm as well as the other documents related to the
intellectual assets.

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References
Al-Sartawi, A. M. M. (2018). Corporate governance and intellectual capital: Evidence from
Gulf Cooperation Council countries. Academy of Accounting and Financial Studies
Journal, 22(1), 1-12.
Auditing Standard ASA 701 Communicating Key Audit Matters in the Independent Auditor’s
Report., (2018). [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf [Accessed
24 Aug. 2018].
Backof, A. G., Bowlin, K., & Goodson, B. M. (2018). The importance of clarification of
auditors’ responsibilities under the new audit reporting standards. Available at SSRN
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Brandas, C., Stirbu, D. & Didraga, O., (2016). Integrated approach model of risk, control and
auditing of accounting information systems. Informatica Economica, 17(4), pp.87-95.
Carson, E., Fargher, N., & Zhang, Y. (2016). Trends in auditor reporting in Australia: a
synthesis and opportunities for research. Australian Accounting Review, 26(3), 226-
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Demartini, C., & Trucco, S. (2016). Does intellectual capital disclosure matter for audit risk?
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Demissie, D. (2015). An assessment of the factors influencing inventory control: the case of
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Johnstone, K., Gramling, A. & Rittenberg, L.E., (2015). Auditing: a risk-based approach to
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Osinski, M., Selig, P. M., Matos, F., & Roman, D. J. (2017). Methods of evaluation of
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Vale, J., Branco, M. C., & Ribeiro, J. (2016). Individual intellectual capital versus collective
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