Importance of Reporting Key Audit Matters and Auditing Reports

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In a financial year auditing plays important role in maintaining appropriate and fair annual report
that is created by any firm. Auditors are in charge for the act into stakeholders or public benefits.
This operation is basically performed to provide and deliver high quality information regarding
true and fair outlook of the accounts formed in the process of auditing. In this paper, importance
of reporting key audit matters and Auditing reports will be discussed and emphasized to make
sure that the importance of reporting key audit matter is obtained in this assessment. reporting
key audit matter is crucial to communicate and connect with the stakeholders to provide them
detailed knowledge and information about the uncertain accounting situations that have been
detected in the process of auditing. This report will help to develop understanding and
knowledge of the users about the several concepts and ideas of auditing and assurance services
that are provided by the employed auditors in a company. In this report there are two case studies
on the basis of which questions are to be answered. This paper will also discuss the key
assertions needed relative to any risk. The paper also discusses the procedures which can be
applied for identified risks.
Question 1
(a) Identify and explain the two key assertions at risk in relation to inventory
The risk in relations in inventory is as follows-
Existence and occurrence
As per the statement of accountant standard 31, the occurrence or existence in relation to
inventory ensures, whether the inventory of the entity exist at the mentioned date and
additionally it ensures whether the transactions have taken place during that period. The record
of all the transaction, purchases or invoices related to inventory supports the existence of the
inventory (Green, 2013). All the transaction related to the inventory must be verified and
reconciled with all the available records or documents. The verification should not be limited to
books and ledger but also other audit processes like substantive testing and confirmation of cash
account balances.
Completeness

Statement of accountant standard 31, states that the assertions in relation to completeness
ensures, whether all the data, information or transactions related to the inventory is included in
the financial statement of the company or not. In support of this assertion, the auditor ensures by
collecting evidences whether all the transaction which should have been recorded is recorded or
not. In relation to the concept of materiality which permits the auditor to support his statement
regarding all the transaction evidence in the financial statement of the entity. The existence of
inventory in the client’s possession can also be an evidence that the inventory has been acquired.
b. Two substantive audit procedures in response to each risk identified above
The closing inventory has significant increment of 4% in case of computing solutions. In the year
2018, the average inventory has also increased in comparison to the previous year of 2017.
The substantive testing process in regard to the existence or occurrence of inventory involves
confirmation from an outside or third party or frequent basis. For instance, instead of using long
standing procedure, a practical confirmation of receivable is preferred. This process may take
place in the presence of client but the auditor must not be influenced by the comments made by
the client to whether a receivable is confirmed or not. In order to determine the correctness of the
address where the inventory is sent, the auditor must exercise due cure. The secondary test for
existence can be done by the verification of cash account balances (Anon., 2009).
The substantive testing process in regards to completeness involves the physical verification of
the inventory at the site. The verification also includes the identification and reconciliation of the
closing amount of the inventory maintained by the entity (AICPA, 2017). As it is evident that the
inventory has risen in comparison to the previous years and to ensure the same, it requires
regular inspection at the warehouse. The vouchers of all the transaction is also significant for the
verification of this assertion. All the transaction in relation to the inventory must be reconciled
with the available invoices of supplies and purchases. The last step would be the verification of
purse amount to the inventory utilized during the process.