ASA 701: Communication of Key Audit Matters - Green Machine Ltd and Advanced Computer Solutions

ACC 707 Auditing
&
Assurance Services

Audit
Executive summary
In the current corporate environment, preparation and presentation of financial statements are
vital for users to make proper decisions. ASA 701 was framed in order to allow auditors
communicate important matters to the stakeholders through their audit report. This can allow
users in making effective decisions based on such material disclosure and therefore, the
company’s goodwill can be enhanced on a whole. Through this report, the cases of two
companies namely Green Machine Ltd and Advanced Computer Solutions shall be reflected
wherein one is related to PPE and other is related to risk of material misstatements.
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Audit
Contents
Introduction...........................................................................................................................................3
Risk of material misstatements.............................................................................................................4
b. Substantive audit procedures........................................................................................................5
c. ASA 701 (Communication of key audit matters)............................................................................5
Green Machine Ltd................................................................................................................................7
a. Two prime assertions.....................................................................................................................7
b. Substantive audit procedures........................................................................................................8
c. ASA 701 (Communication of key audit matters)............................................................................8
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10
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Audit
Introduction
Auditors can easily communicate key matters to the stakeholders through the audit report and
this requirement is emphasized by ASA 701. However, it is also the management’s liability to
oversee whether the exact scenario and affairs of the company have been reflected in their
financials. Moreover, stakeholders can make appropriate decisions if the adopted
communication measure is effective in nature. Disclosures should happen at the proper
course of time because disclosures lead to transparency (Badolato, Donelson & Ege, 2014).
It not only supports and helps the users of the financial statement but ensures a strong
goodwill of the entire company. Further, it is vital to understand that the auditor must ensure
decision making in an unbiased manner as it will led to independent decision making.
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