Auditing and Assurance: Key Assertions, Substantive Audit Procedures, and KAMs

Running Head: AUDITING AND ASSURANCE
Auditing and Assurance
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1AUDITING AND ASSURANCE
Table of Contents
Introduction................................................................................................................................2
Case of Advanced Computer Solutions Limited........................................................................2
Key Assertions at Risk...........................................................................................................2
Substantive Audit Procedures................................................................................................4
Case of Green Machine Limited................................................................................................5
Key Assertions at Risk...........................................................................................................5
Substantive Audit Procedures................................................................................................6
Key Audit Matters (KAM) as per ASA 701 Key Audit Matters...............................................7
Objectives...............................................................................................................................7
Definition:..............................................................................................................................7
Requirements to Determine KAM:........................................................................................7
Benefits of ASA 701 Key Audit Matters...............................................................................8
Reasons for selecting Key Audit Matters:.............................................................................9
Case study of Advance Computer Solution:..........................................................................9
Case study of Green Machines Ltd:.......................................................................................9
KAM disclosure under ASA 701 Key Audit Matters:.............................................................10
Conclusion:..............................................................................................................................10
References:...............................................................................................................................11

2AUDITING AND ASSURANCE
Introduction
Auditing is defined as the inspection of the financial reports along with the accounts
of business organization without considering the materialistic misstatements. The preparation
of audit report always makes sure that the auditors are reviewing the assertions from the end
of management (Gay and Simnett 2015). Conducting an audit report is incomplete if the
auditors are not considering the point of view of the management while taking into
consideration about the assertions for preparing the financial reports. Now if we discuss about
the audit assertions, these are nothing but the assumptions and important thought processes
that management of any company possess for implying it in the process of financial
reporting.
There is risk as well in these assertions which can create materialistic impact as well
on the financial reporting. Hence the auditors here plays a great role in identifying the risk
factors involved within these kinds of assertions that are taking place while managing the
financial accounts or reports. In case of Australian auditing methods, this is very crucial for
the auditors to follow the rules and principles of ASA 701 Communicating Key Audit
Matters in the Independent Auditor’s Report (Louwers et al. 2015). This particular scope of
work shows how to deal with the risk of the assertions in broader perspective and also it helps
them to record all the risk factors involved within the financial assertions happened in the
financial account or report. This above introduction to the assertions risk is elaborated from
different point views in this report and also this report is discussing about the key audit
matters for two particular situations.

3AUDITING AND ASSURANCE
Case of Advanced Computer Solutions Limited
Key Assertions at Risk
The two potential assertion risks have been discussed in case of the Advanced Computer
Solutions Limited (Advanced Computer Solutions) in this section.
Completeness: Completeness is one of the crucial assertions that are valuing the business
inventories. According to this assertion the business heads are reliable in keeping the records
for all the transactions taking place during business process and this is done in terms of the
inventories (Carson, Fargher and Zhang 2016). Therefore, underestimation of these
inventories may create potential assertion risk. An example can easily elaborate this fact, if a
business head is not including any purchase of inventories in the assertion record then it is an
assertion risk. Inefficient internal controlling parameters can lead to this kind of assertion
risk. In reference to the information about the company Advanced Computer Solutions, the
company gained 26 per cent sales in the year of 2018 however, it gained 18 per cent of sales
in the year of 2017. In reference to these data, this can be stated that the responsible head
must have been included an inappropriate value of sales of inventory in 2017 that impacted
the sales evaluation of the year 2018. This description highlights the fact that one major
assertions risk has been identified in Advanced Computer Solutions.
Accuracy: Another important assertion that management of companies do is Accuracy of the
inventory data. Accuracy is a parameter that identifies errors and mistakes done while
managing inventories of any business (Knechel and Salterio 2016). This parameter make
restricts the responsible head in making mistakes while preparing the inventory management
report and helps the correct inventory data to flow in the financial report. In reference to the
scenario of Advanced Computer Solutions, this is identified that they were moving their
inventories to six regional warehouses form their central warehouse in March 2018. Hence it
might create huge calculation error while counting the inventories those were moved. This