Auditing and Assurance Services: Key Assertions, Substantive Audit Procedures and ASA 701

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

1AUDITING AND ASSURANCE SERVICES
Table of Contents
Introduction................................................................................................................................2
Advanced Computer Solutions..................................................................................................2
Key Assertions at Risk...........................................................................................................2
Substantive Audit Procedures................................................................................................3
ASA 701 Key Audit Matters..................................................................................................4
Reasons for the Selection of the Key Audit Matters..............................................................5
Disclosure as per ASA 701....................................................................................................5
Green Machine Ltd....................................................................................................................6
Key Assertions at Risk...........................................................................................................6
Substantive Audit Procedures................................................................................................7
ASA 701 Key Audit Matters..................................................................................................8
Reasons for the Selection of the Key Audit Matters..............................................................8
Disclosure as per ASA 701....................................................................................................9
Conclusion..................................................................................................................................9
References................................................................................................................................11

2AUDITING AND ASSURANCE SERVICES
Introduction
Auditing can be considered as a set of process where the responsibility is on the
auditors to apply analytical procedures on the financial statements of the companies so that
any material misstatements can be identified and reported (Simnett, Carson & Vanstraelen,
2016). It is needed for the auditors to take into consideration certain aspects while inducting
audit like the assertions that the company’s management used for the preparation of financial
statements. These assertions can be regarded as explicit or implicit claims by the management
to prepare and present the financial statements. There are instances when the auditors have
found risks in these assertions related to material misstatements. Hence, it is needed for all
the auditors to examine these assertions for the identification of risk, if any. While analyzing
these audit assertions, certain regulations and standards are there that the auditors need to
adhere to as these regulations provide them with the necessary guidelines for the detection of
assertions risks and in the communication of the same (Burton et al., 2014). This report
analyzes the case studies of Advanced Computer Solutions Limited (Advanced Computer
Solutions) and Green Machine Ltd for the identification of assertion risks, application of
substantive audit procedures and disclosure of the same.
Advanced Computer Solutions
Key Assertions at Risk
Analysis of the situation of Advanced Computer Solutions provides the auditor with
the knowledge of two assertions that are at risk; they are Accuracy and Completeness; the
supporting reasons are shown in below:
Accuracy: Accuracy must be there from the side of the management in the valuation of
inventory. It is possible to identify any error and inappropriateness in inventory valuation
using this assertion (Alles, 2015). According to the obligation of this particular assertion, the

3AUDITING AND ASSURANCE SERVICES
managements of the firms are committed towards the correct calculation of their inventory
along with the correct physical count of inventory so that the same can be recorded in the
financial reports. The auditor can obtain the knowledge from the provided situation of
Advanced Computer Solutions that the company has recently been involved in moving all of
their inventories to six regional warehouses from their central warehouse in the month of
March, 2018. The accuracy assertion says that the responsible personnel might make error in
the physical counting process of inventory before or after moving the inventories. Hence, this
particular error can lead to the reduction of inventory turnover in 2018 that is 3.8 in 2018
from 5.4 in 2017 (Bowlin, Hobson & Piercey, 2015). Thus, in the presence of these reason,
the auditor can consider this assertion at risk in Advanced Computer Solutions.
Completeness: There must be complete valuation of the inventories in the companies. As per
the requirements of this assertion, the managements of the firms are committed towards
keeping all the records related to all the transaction of inventory in the correct accounting
books; otherwise, missing information can lead to the understatement of inventories
(Antonio, 2014). There can risk of material misstatements when the employees do not record
the information of inventory after the occurrence of purchase. This assertion can be at risk
when internal control is weak. It can be found from the provided information about Advanced
Computer Solutions that 18 percent of sale is included in the inventory of 2018 along with 26
per cent of the sales of 2018. This information indicates towards the possibility of any kind of
incorrect valuation of inventory by the company that contribute towards the inclusion of sales
of 2017 in the inventory of 2018 (Coppage & Shastri, 2014). For this reason, this assertion is
at risk in Advanced Computer Solutions.
Substantive Audit Procedures
It is the job of the auditors to perform the correct substantive audit procedures after
the identification of the assertions at risk and it is same for Advanced Computer Solutions.