Audit of Green Machine Ltd: Significant Assertions and Substantive Audit Procedures

AUDITING & ASSURANCE

Audit
Green Machine Ltd
i. Two significant assertions
The claims made by the management about its financial statements are referred to as
assertions that are generally presumed to be accurate and fair. Thus, the audit team may
generate significant enquiries upon the management if their assertions come out to be
fraudulent or untrue. Moreover, for manufacturing companies like Green Machine Ltd, fixed
assets like PPE (property, plant, and equipment) serves as the most crucial asset that
necessitates efficient classification and valuation on the part of the management team. Hence,
if proper cost and rating are not done, many financial complications may arise.
a. Classification assertion
The first risk is the classification assertion wherein all the assets must be classified
appropriately to their respective heads. Also, expenses must also be grouped into their leaders
to determine which category of spending the company has incurred. For example, costs
associated with repair and maintenance must be grouped under revenue expenses, etc.
Nevertheless, in the case of Green Machine, such requirement has not been duly fulfilled as
all capital and revenue expenses are admixed together, thereby creating complications to
ascertain the correct values of the company’s PPE. Besides, the amount of profit or loss has
also depicted a wrong figure owing to such admixture of expenses (Matthew, 2015).
b. Accuracy assertion
The second risk is the accuracy assertion which sheds light on the fact that all the
computations must be appropriately conducted so that the auditor does not offer a qualified
opinion on the financials. Nonetheless, the rate of depreciated calculated by the company has
been remarkably less in nature that has played a role in hampering the real figures of the
company’s assets (Matthew, 2015). Besides, such consideration of less depreciation can
inflate the financial statistics of the company, incur further liabilities like a deferred tax, etc
(Dauber,, 2009). Therefore, the overall economic scenario of the company is at risk because
of such error in the computation of depreciation.
ii. Two substantive audit procedures
All the previously mentioned assertions can be proved only with the assistance of functional
audit processes that plays a significant role in gathering relevant evidence in support of the
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