Auditing Standards and Procedures

Auditing Standards and Procedures 1
AUDITING STANDARDS AND PROCEDURES
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Auditing Standards and Procedures 2
Auditing Standards and Procedures
Question 1
a)
Assertions refer to the statement of the management regarding the inventory. The
assertions at risk are completeness and existence. The assertion of completeness requires the
recording of all inventories that were moved during the period. The financial statements of
Computing Solutions Limited show that inventory was moved to six locations during in March
2017. This puts the company at high risk of misstating movement of all inventories implying that
the inventories movement may not be recorded. The company moved its inventory to six
different warehouses in one month. The financial statements may not account for these
movements since they may not be recorded well or the accountant may ignore them (Lescourret
2017, p. 780).
Existence is another assertion that is at risk in Computing Solutions Limited. This
assertion requires that inventories recorded should be a representation of items on hand at the
end of the reporting period. Therefore, the inventory recorded at the end of the accounting period
should represent items that the company has on hand at the end of the period. This assertion is at
risk since its inventory is a representation of the percentage of sales. In the year 2017, the
inventory represented 22% of sales while in 2014 it represented 18% of sales. The firm is at risk
of misstating the inventory at the period end as it does not represent the items that the
organization has on hand (Sharma and Muhammad 2018, p. 6).

Auditing Standards and Procedures 3
b)
In response to the assertion of completeness, the auditor carries out the audit procedures
of checking the accuracy of inventory listing and recording and obtaining evidence of the
existence of inventories in the warehouses. The auditor tests the accuracy of inventory listing to
ensure that all the inventory moved during the period were captured in the recordings. Checking
the accuracy of the recordings will require the auditor to compare the physical count of inventory
movements and compare it with the recorded counts. This will help in determining if all the
movements were recorded. The auditor also traces test counts of inventory movement and
compares these movements with stock-take listings (Лосева and Loseva 2015, p. 14).
Another audit procedure that the auditor could perform is verifying the existence of the
inventory in the warehouses. Since inventory was moved to six new regional warehouses in
March 2017, the auditor can choose to communicate with these warehouses to obtain evidence of
the existence of stock. The evidence will show the amount of inventory and their price. The
auditor then compares this with recordings of the company.
The auditor could perform substantive audit procedures of attending entity stock take and
cut off procedures as a response to the risk of existence. The auditor can attend the stock take
exercise of the entity to ascertain that prescribed procedures are followed in the recording of
inventory. Attending the stock taking of the firm will also help the auditor identify if the
inventory recorded represents the items on hand that the entity has at the end of the accounting
period. The stocktaking exercise involves physically counting the stock and recording their
amount. The exercise determines the value of inventory at a given time Habib, (2014). Auditor-
Provided Tax Services and Stock Price Crash Risk SSRN Electronic Journal.

Auditing Standards and Procedures 4
The cut-off procedures can also be performed in response to the assertion of existence.
The procedures ascertain whether inventories have been recorded in their correct periods (Blay
& Geiger 2012 p. 600). Cut off procedures will assist the auditor in determining if there are any
instances of double counting of stock. Double counting stock will put the company at risk since
inventory will not represent the items on hand at the end of the period
c)
The auditor is required to determine among the matters provided, the most significant
issues in the period in which the auditing is conducted and therefore, term them as the key
matters in the auditing of the financial statement. They are required to describe every matter
identified as key in a separate part of the audit report, with the title “Key Audit Matters” unless
provided and the introductory part as the matters which were made by a professional auditor with
a professional judgment and it has been stated in the context of the current professional audit of
the financial statements (Gimbar et al 2016 p. A25).
The auditor should not report any information described as the key audit matter which
still requires the auditor to make an amendment required in the Section &05 of the
communication of the auditors' key standards. The description made by the auditor should,
therefore, be provided with the disclosure of the part which the key audit standards are provided
where the key auditor describes why the matter is termed as significant and why the matter was
addressed by the auditor was addressed in the audit (Albring et al 2014).
The auditor is required to explain the matters which are significant to the audit. However,
they are not required to disclose the matters under the circumstances that; the law precludes the
disclosure of the matter or the adverse implication of disclosing the matter will outweigh the