Auditing Report: Advanced Computer Solutions Audit Analysis

This auditing report provides a comprehensive analysis of auditing principles, focusing on key assertions, audit procedures, and the application of ASA 501 and ASA 701. The report examines a case study involving Advanced Computer Solutions, highlighting potential risks related to inventory management, revenue recognition, and capital versus revenue expenditure. It details substantive audit procedures to address identified risks, including physical inventory counts and the evaluation of revenue fluctuations. The report also addresses the communication of key audit matters, emphasizing the importance of clear disclosure in the auditor's report. Furthermore, it explores the identification and assessment of risks of material misstatement, specifically concerning property, land, and equipment, and outlines relevant audit procedures to mitigate these risks. The analysis covers the distinction between capital and revenue expenditure and the treatment of depreciation on fixed assets.

AUDITING

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
a) Key assertion at risk in relation to property land and equipment...........................................1
b) Substantive audit procedure in response to risk identified.....................................................2
c) Requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s Report.......3
QUESTION 2...................................................................................................................................5
a) Key assertion at risk in relation to property land and equipment...........................................5
b) Substantive audit procedure in response to risk identified.....................................................5
c) Requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s Report.......6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Auditing is a process of evaluating the financial records of the organisation to assess the
authenticity of records. This process is performed by auditors to evaluate the financial records if
these records are maintained as per Accepted Accounting standards, provisions and accurate
legislations (Barrett, 2012). This report discuss the legal and professional issues appointing in
independent auditors report. Duties and responsibilities of independent auditor, current auditing
standards and the major concepts are illustrated in practical based scenario. There are key audit
matter and treatments regarding the material misstatement and identified risk also addressed in
this report.
QUESTION 1
ASA 501 – Audit evidence - Specific consideration for inventory and segment
information contains the rules related to application and other explanatory matters subject to
specific inventory and segment data in an audit of financial report. This standards mainly
centralised around the following areas such as;
a) Procedure to be performed by the auditor while preparing financial report to attain the
adequate audit evidence for the existence and state of stock (Carey, Monroe and Shailer, 2014).
b) Responsibilities of auditor in terms of appearance of at physical inventory counting.
c) Responsibilities of auditor while undertaking the control of third party if it is material to the
financial reports.
d) Requirements to attain adequate presentation and disclosure of section data with the relevant
financial reporting.
a) Key assertion at risk in relation to property land and equipment
Audit assertion: It is considered as a procedure that refers to the assessment of financial
statements according to company's policies, guidelines, financial reporting and internal controls.
A declaration upon measurement, presentation and disclosure of financial and non financial data
of business are considered in audit assertion (Carson, Simnett and Wright, 2012).
Advanced Computer Solutions is a computer software solution providing company.
There is an audit program organised and performed by independent auditors. While assessing the
risk of material misstatement and evaluating the proper response to the inventory of company at
30th June 2018 following Key assertions come across;
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1. Assertion in terms of high level of returns owing to suspected software problem that may
result less returns and high inventory turnover ratio
2. Threat of breaching of going concern accounting concept
b) Substantive audit procedure in response to risk identified
Audit procedure
An Audit procedure is a formation of analysing the quality and standards of financial
information of organisation provided by the clients (Carey and Tanewski, 2013). Auditors use
audit procedures to clarify and prove their audit assertions. It remain based upon the audit
assertions through which auditors analyse that whether the accounting standard are divided in
properly in accounting records or not.
Risk 1
In first assessed risk, scenario indicates towards the problem of managing the inventory
levels and management in near future. The produced regarding the assessment of identifying the
risk of having less returns and high turnover ration and evaluation process regarding the changes
in different forms. As the return may lead organisation to entertain hight inventory level that will
indirectly increase the inventory level.
Physical inventory count audit procedure
The above case is mainly associated with inventory retention and management. By
considering this the nature of the scenario is covered in inventory auditing procedure of observe
the physical inventory count (Chalmers, Godfrey and Lynch, 2012). This inventory procedure
mainly associated with physical verification of inventories that are counted in normal business
flow. Auditors analyse the level of inventory in physical form. All the related documents and
assessments are and counted according to proper accounting procedures and rules. It will help to
analyse the inventory account of organisation that fluctuates during a particular time span.
As per the above case of Advanced Computer Solutions the auditing standard would be
centralised around physical verification of returns owing to suspected software problems.
Auditors have to analyse the books of accounts of Advanced Computer Solutions of last financial
year (from 1st July 2017 to 30th June 2018). the physical verification will be done one the basis of
physical check of inventories retained by company for the current financial year. This will also
considered in key audit matters in independent auditors report.
Risk 2
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Second assessed risk violates two major auditing standards which is ISA 570 related
Going Concern and 501 which is related to existence and valuation of inventories (Goos, Dole,
and Geiger, 2012). After evaluating the risk of material misstatement of inventory of Advanced
Computer Solution Limited Auditors find out that Organisation get a large government
department with various products. To get competitive advantage company started supplying the
items at 10 percent less their cost price. This is one of the important information was required to
disclose by the company to stakeholders of organisation.
Substantive audit procedure for revenues
ISA 315 Covers the rules and standards to produce auditing standards for recognition of
interim and financial audit tests. As per the above material misstatement element it is evaluated
that company started to supply the material 10% less on cost which will directly impact upon the
revenues of organisation. Apart form it, this will impact the consistency and existence of new
business in near future. Following steps are required to taken up by auditors such as;
 Evaluating the overall revenue against prior period and evaluate the significant
fluctuation due to reduction in cost by 10%.
 Ana lying the impact upon gross profit and net profit margin
 Audit of credit and debit notes while disclosing and determining the accounting for
ledger accounts and completeness of the revenues.
 Analysing the trade customers orders required and orders place in sales to ensure the
completeness of revenues.
 Preparing the notes to both the pre and post period of sales which are recognised in
accounting to ensure the cut-off applied accurately upon business operations.
c) Requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s Report
AS per the International Standard on Auditing 701 Communicating Key Audit matters in
the auditor's report indicates towards the statements that remain avoided while preparing and
disclosing the final reports of organisation (Lodhia and Jacobs, 2013). Key Audit Matters:- it is
those matters, which is selected by government assigned person. which is written or mention in
the auditors report by the auditors. It is auditor's judgement which is important for making
financial report as well as for current period, these judgements are risky for auditors. This
include the difficult areas of audit, which become barrier for the auditors and it's also include the
sufficient audit evidence that remain essential while making the audit procedure. Auditors has to
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change it's approach according to circumstances and modified it. Auditor has to mention all key
audit matters in the auditors report.
There are some key risk areas identified by auditors while auditing of material
misstatement of organisational accounts. It is analysed that organisation following risk areas are
identified as key audit matters defined as follows;
 High level of returns owing to suspected software problems in Advanced Computer
Solutions
 Bifurcation of central warehouses in six different regional sections and warehouse in
March 2018
 Consideration of 10% below cost in price supplying the items and for the first tome to be
delivered to the government department in the middle of July 2018.
Determining key Audit matters
There key audit matters are those elements which are disclosed by the auditors subject to
different section (Martinov-Bennie, 2012). These are defined as per categorised form. There are
two main identified risk are ascertained in audit report such as;
 Risk of having high inventory turnover ratio due to high level of return inwards
 Risk of having less revenues related and threat of breaching of disclosure procedure.
Communicating key audit Matters
The auditor shall communicate the key audit matters determined in accordance with
paragraph 8 in a separate section of the auditor’s report under the heading “Key Audit Matters.”
The auditor’s opinion which is manly associated with analysing the more identified and
comprehensive manner. Main key audit matters are required to address which are as follows:
a) it is require to communicate the major formation of business in terms of
communicating the key audit matters for getting increased turnover ratio.
b) It is required to communicate the key audit matter that accrued in organisation to
consolidate the variations.
Disclosure Requirement ASA 701
 It is assessed that the information provided under the audit is formed around risk based
scenarios and it is identified that assessed risk also exists with classified material
misstatement.
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 It is observed that the supervision of the financial statements and the figures are
undertaken with intangible assets.
 The policies and amendments made by advanced computer solutions are not defined
clearly and computing the solutions with respect of July 2018.
QUESTION 2
a) Key assertion at risk in relation to property land and equipment
ASA 315 Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment covers the rules related to find out any material
misstatement. The AUASB recognizes that IFAC is the proprietor of copyright in the
International Standard on Auditing consolidated in this Auditing Standard all through the world
(Nicoll, 2016). This Auditing Standard replicates generous parts of the comparing International
Standard on Auditing issued by the International Auditing and Assurance Standards Board
(IAASB) and distributed by the International Federation of Accountants (IFAC), in the way
depicted in the announcement on Conformity with International Standards on Auditing.
1. Assertion in term of distinction between capital and revenue expenditure
Find out in Auditors analysed that there is a separate procedure and plan is required to
considered in auditor's opinion while communicating the expenditure audit of company.
2. Key assertion in terms of charging the depreciation on fixed assets
The conveying measure of a thing of property, plant, and hardware will incorporate the
expense of supplanting the piece of such a thing when, to the point that cost is acquired if the
acknowledgement criteria (future advantages and estimation dependability) are met. IAS 16
perceives that parts of a few things of property, plant, and gear may require substitution at
normal interims (Shah and Nair, 2013). The conveying measure of those parts that are
supplanted is de-recognised as per the non-recognition arrangements of IAS 16.67-72. [IAS
16.13]
b) Substantive audit procedure in response to risk identified
Audit procedure of Revenue and capital expenses
A financial audit is a chance for business to find out reliability and proper documentation
of revenue expenses. The revenue expenses can be paid by the company according to income
statement and invoiced expenses (Stewart, Kent and Routledge, 2015). In given case study
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management shows previous year's audit and there is mark some problems regrading to
difference between capital and revenue expenditure. But there is revenue expenses were
capitalized and capital items are including in repair and maintenance. So solving this problem
there is need to follow proper procedure of audit related to revenue and capital expenditure. The
audit procedure of capital and revenue expenditure provided by financial statements and reports.
These are analysed by auditors to monitor trends and variances audit of revenue and capital
budgets. These budgets are post implementing of reviews related to expenditures. In auditing
procedure audit and review of small to medium sized Australia companies and in this consist of
those companies are overseas owned. There is prepare to solicitor accounts and provide advice
for risk management policies. After this assessment of specific risk and outsourced internal audit
assignments. For follow the procedure need to internal controls of expense and reasonable check
of expenditure.
Audit procedure of fixed assets
Audit of financial statements are performed to provide reasonable assurance that all
transactions related to company are perform financial statement according to generally accepted
accounting principle. The balance of fixed assets, deals with those assets that can easily convert
into cash. It is shows as common material account balance in financial statements. The audit
procedure of fixed assets are as follows -
Depreciation of fixed assets
The business have many assets and on these assets charged appropriate depreciation
according to schedules. The only common fixed assets is not depreciated that is land. In given
case study identify risk regarding to depreciation calculations because they are charged different
depreciation rate on assets. Some assets have been too much low and too much high so there is
create differentiation (Xu and wet. al., 2013.). So business owner should attach a depreciation
schedule to real estate because in Australia markets has a long history of commercial buildings
appreciating in value. There is necessary for company to apply common way of accounting. All
depreciable assets therefore are depreciated are using a straight line method or an expedited
depreciation method. Straight line depreciation method applies on all fixed assets and fixed
amount reduction from the assets to every year. Expedited depreciation front loads the
depreciation in the early years that is owned. There is need to establishing the appropriateness
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and correctness of the depreciation schedule for fixed assets is another essential fixed assets
auditing task.
c) Requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s Report
The most common KAM related to carry value of assessment of different expenses that
are used to control by the manager of company. Revenue is consider to key driver of an
organisation performance and stakeholder values. Almost half of the acquisition KAM's cited
complexities with measuring circumstance and possible consideration from the current and past
expenses done by the company in order to complete the performance of different function of
company.
Determining Key Audit Matters
a) it is recognised with proper procedure of treatment of capital expenditure and revenue
expenditure.
b) It is required to communicate the methods of valuation of fixed assets.
Communicating Key Audit Matters
The reviewer will depict each key review matter in the Key Audit Matters segment
utilising an proper subheading, aside from in the conditions clarified in passage 11. The portrayal
of each key review matter will include the main function.
Disclosure Requirement of ASA 701
 While assessing the information provided it was recognised that audit is risk-based and
focuses in identifying and assessing risk related with existence and the classification and
material misstatement of assets and obtaining Audit evidence that is appropriate and
sufficient in providing basis for the audit opinion.
 Business combination was evaluated and basis was established about the potentiality of
the intellectual property.
 Detailed observation, complete review of the financial statements, and interviews were
taken in identifying the existence of the assets and the type of intangible assets.
 Insufficient information about the management policy and the basis of classification of
assets posed problems in the audit process (AASB 701, 2015).
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CONCLUSION
The above report summarise the structure of report in terms of determining the stages
while making the key audit matters. It is summarised that dinting standards and valuation are
essential aspects in terms of making the financial changes and variations for providing auditor's
opinion. The audit procedure subject to inventory valuation and other analysis in terms of
making the structure of disclosure. Practical based scenario summarise the audit formation
subject to disclosure provided by auditors.
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REFERENCES
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