Auditing Theory and Practice

Running head: AUDITING THEORY AND PRACTICE
Auditing theory and practice
Name of the Student
Name of the University
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AUDITING THEORY AND PRACTICE
Table of Contents
Answer to question 1:.................................................................................................................1
Assessing the likelihood of misstatements of each of the general objectives of accounts by
using analytical procedures:.......................................................................................................1
Answer to question 2:.................................................................................................................2
Identifying the internal control of sales revenue and inventory account:..................................2
Evaluation of internal controls in determining the material misstatement of accounts:............2
Answer to question 3:.................................................................................................................2
Answer to question 4:.................................................................................................................2
References list:...........................................................................................................................3

AUDITING THEORY AND PRACTICE
Answer to question 1:
Assessment of inherent risk:
In accordance with the applicable standards of accounting, the objective of the sales
revenue account is to analyze the accounting transactions and balances are fairly represented.
The auditor’s objective in achieving the assertion of occurrence of the general objective of
the sales revenue account, they have to obtain an assurance about the proper recording of all
the transactions related to account. Inherent risk of any account is the vulnerability of the
assertion that would result in the material misstatement when there does not exist any other
internal control. Such risk is influenced by internal as well as external factors such as
circumstances that would result in rising of business risk (Gaber & Lusk 2017).
The entity factors influences the inherent risk relating to specific assertion about the
classes of transactions, accounts of balances and disclosures. In the given case of Quarter
limited, the inherent risk is mainly influenced by the factors that are external to the
organization such as marking down the selling price of the items that would result in
understatement of the accounts and transaction balances (Botez 2018). Furthermore, the sales
of inventory have slowed down because of change in trend that causes the product to become
less popular.
The sales revenue account has some of the risk associated with it that comprise of
improper team of sales transaction, timing of recognizing the revenue and rights of customer
to return the product. Some of the inherent risk associated with the inventory account of
Quarter limited includes the misstatement in the prior period and complexities related to the
procedure of managing inventories. It has been found from the analysis of the financial
figures of Quarter limited that the expenses and allowance in relation to obsolescence account