Auditing and Assurance Services

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
Audit Assertions.....................................................................................................................2
Substantive Audit Procedures................................................................................................3
Case of Green Machine Ltd.......................................................................................................5
Audit Assertions.....................................................................................................................5
Substantive Audit Procedures................................................................................................6
ASA 701 Key Audit Matters......................................................................................................7
Requirements..........................................................................................................................7
Reasons for the Selection of the Key Audit Matters..............................................................8
Disclosure of Key Audit Matters as per ASA 701 Key Audit Matters..................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

2AUDITING AND ASSURANCE SERVICES
Introduction
At the time to conduct the audit operations, it is needed for the auditors to undertake
the analysis and evaluation of the clients’ accounting books and aspects related to them like
the intrinsic and extrinsic claims of their management in the preparation and presentation of
the financial reports (Knechel and Salterio 2016). These claims are considered as audit
assertions that is a crucial part for the auditors for developing the correct audit opinion. There
are many cases where the auditors have found the scope of material misstatements around the
used audit assertions. Hence, analysing the fact that whether any audit assertion is at risk or
not is considered as a prime responsibility of the auditors as they are needed to perform the
appropriate substantial audit procedures for minimising the audit assertion risks (Chou 2015).
The objective of this report is the analysis of the used assertions in the provided case studies
with the aim to find assertion risks so that appropriate audit procedures can be suggested.
Advanced Computer Solutions
Audit Assertions
It is needed for the auditor of Advanced Commute Solutions to test the management
assertions. These are discussed below:
Accuracy/Valuation: The testing of this assertion ensures whether the transactions related to
inventory are free from errors. The auditors face two major issue while testing this inventory.
First, they are needed to make it sure that the audit clients’ physical inventory figures are
correct. Second, they need to test whether the appropriate amount of inventory flows from the
balance sheet to the company’s income statement in the form of cost of goods sold (Wood,
Brown and Howe 2013). The auditors are needed to consider the testing of these aspects
related to the accuracy or valuation assertion. According to the provided information on
Advanced Computer Solutions, there is a suspected software problem. In addition, in March

3AUDITING AND ASSURANCE SERVICES
2018, the inventories of the company were moved to six new regional warehouses from one
central warehouse. This aspect indicates towards the scope of having error in the physical
inventory count process that led to incorrect mathematical inventory figures. In addition, due
to the problem in software, the correct inventory might not be flown from the balance sheet to
income statement as cost of goods sold (Green 2013). These reasons could reduce the
inventory turnover to 3.8 times in 2018 from 5.4 time in 2017. Thus, this assertion can be
consider at risk.
Cut off: The testing of this management assertion encompasses making sure that the
companies have reported all inventory related transactions in the proper financial period. For
doing this, the auditors are needed to ensure testing receiving and shipping documents for
providing the fact that the client has appropriately recorded into the inventory and out of the
inventory movements (Zuca 2013). For example, in a specific calendar year, an audit client
cannot record goods received on January 2 as inventory for December. It means that clients
are needed to ensure the correct calculation of the amount and value of inventory in the
financial statements. It can be seen from the given information about Advanced Computer
Solutions that the inventory in hand at the year-end embodied 26% sales of 2018 and 18%
sales in 2017. The inclusion of previous year’s inventory in the current year implies that the
company has failed in proper calculation of the amount and value of inventory. It can happen
due to the issue in the software (Bratten et al. 2013). Hence, this assertion can be considered
at risk.
Substantive Audit Procedures
It is the responsibility of the auditor of Advanced Computer Solution to perform the
appropriate audit procedures for the above-discussed assertions at risk.