ACC707 Trimester 3, 2018: Audit of Advanced Computer Solutions Report

This report presents an analysis of an audit and assurance assignment focused on Advanced Computer Solutions Limited. The assignment addresses the risk of material misstatement related to inventory. The analysis includes the identification of key assertions such as completeness, existence, rights, and obligations, as well as valuation. It explores relevant audit procedures, including analytical review, inquiry, and observation. The report also discusses account balance assertions like completeness, existence, rights and obligations, and valuation, along with presentation and disclosure assertions. Furthermore, it examines audit procedures such as inspection and recalculation. The report concludes by referencing ASA 701 and its implications in auditing.

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Running head: AUDIT AND ASSURANCE
AUDIT AND ASSURANCE
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
1 (a)..................................................................................................................................................2
1 (b)..................................................................................................................................................3
1 (c)..................................................................................................................................................5
2 (a)..................................................................................................................................................6
2 (b)..................................................................................................................................................7
2 (c)..................................................................................................................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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Introduction
The process of auditing is important for any organization for ensuring that the financial
activities that are being undertaken and executed by any organization is up to the mark and is
able to maintain transparency being abided by the protocols of accounting standards (Averhals et
al. 2018). The paper reflects the procedures of auditing as well as the auditing assertion that best
suits the discussed cases based on the requirements needed for effectively executing audit in the
particular cases.
1 (a)
In case of Advanced Computer Solutions Limited the risk associated can be audited and
appropriate response can be incorporated. There are various assertions related to the risk in
relation to the property, plant and equipments among which there are completeness, existence,
rights and obligations as well as valuations, etc. The transaction level assertions are as follows:
Accuracy – this relates to the amount of transactions that are been recorded without any errors.
Classification – When all the transactions are been recorded within the general ledger in the form
of current accounts is incorporation in this transaction level of assertions.
Completeness - Completeness relates the aspects of the business activities for which the
company was subjected are being recorded (Gist et al. 2015).
Occurrence – The assertion takes under consideration the fact that the transactions actually took
place.
Cutoff – This incorporates the assumption that all the transactions are being recorded with the
stipulated or correct recording period (Simetinger. 2018).

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The assertions varies with respect to the financial statements undertaken. As for example
transaction level assertion relates to the income statement while the account balance assertion
relates to the balance sheet and that of the presentation and disclosure assertion relates to that of
the accompanying disclosures (Louwers et al. 2015). The risk related to these key assertions is
that the auditors cannot proceed further without obtainment of management assertions from the
senior managers along the managerial hierarchy that are related to the clients. If this managerial
assertion is not obtained then this reflects the fact that the management may have engaged in
fraudulence activities related to the accounting irregularities.
1 (b)
Based on the identified risks and the key assertions it can be incorporated that the
following audit procedures will be best suited for the company. They are as follows:
Analytical Review
The analytical review provides the better option in order to track the unusual transactions
that are related to that of the financial evidences or the events that undertook in order to
incorporate certain functional activities. In case of the company it is been found that there is
requirement for obtaining evidence related to that of the unusual transactions that have occurred
regularly (Griffiths. 2016). The reasonableness of depreciation is needed to be assessed that are
being recorded in the financial statements as they use to occur on a regular basis and should be
calculated systematically and hence analytical review should be better as well as substantive
audit procedure for monitoring the financial performance related to the transactions and track the
accounting irregularities.
Inquiry

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The related management and the accountants are being inquired for gathering additional
information related to the financial transaction and the feasibility of the accounting facts and
figures followed by obtaining explanation regarding the matters in details. It is important to
assess the business process by enquiring the management regarding the fact that how the
financial transactions are recoded and the business is majorly controlled. This procedure is
essentially require to be used at different stages of the audit procedures (Kend and Basioudis.
2018). As for example in this particular case the auditors should prefer to inquire the
management at the planning stage to confirm the consignment liabilities at the end of the
executed audit works. Thus the nature of the financial transactions gets assessed followed by
accumulation of reasonable evidence and gaining knowledge for the designed or performed
testing related to audits of financial transactions. The testing becomes effective through
implementation of this auditing procedure as only the inquired information are not used as
evidence rather the information are tested through the audit procedure and then the outcome is
considered.
Observation
This is a substantive audit procedure that auditors may use in this case in order to
understand and gather evidence regarding the real process on the ways through which the clients
execute the business processes. This can be implemented in order to realize and confirm what is
being told by the clients or implicated by the physical information as provided. This can be used
as audit evidence which help the auditors to make their own projections that are further used for
comparing with the client figures (Gu et al. 2017). The auditors may prefer to join the client
stocks at the end of the particular financial year for observing whether their counts can
appropriately assess the client figures. If not then in that case they should implement the correct

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procedures to reduce the gap in their measurement so that the actual figures can match up with
the client figures. However in this procedure the auditors are not confirmed about the fact that
whether the client’s counts their inventories correctly or not and on the other hand whether the
procedures adopted by the clients are correct or not regarding measurement of the inventories
(Schmidt et al. 2016). Moreover, the auditors prefer to understand that whether the counting
procedure actually exists from the side of the clients. However, the realistic scenario reveals that
the auditors sometimes are not effectively aware of the way of counting by the clients rather they
prefer to jointly count the inventories with the client. The cross checking procedure in this case
may be not only to count the observed valuations related to inventories or fixed assets but also
testing the reasonableness of the revenue earnings in the particular financial year (Knechel and
Salterio. 2016). This can be done through the revenue recording process and tallying with the
accounting records followed by fact checking and figure verification. It may happen that the
revenue may be completely recorded or may not be completely recorded and in this case the
cross verification will provide all the requisite evidence to the auditors.
1 (c)
Based on characteristics of the financial transaction and the need for mitigating the risk
associated with the target transactions, auditors design their procedure of audits and monitor the
balance between risk and return for eradicating the risks involved in the process of keeping
transparency in incorporating financial information as well as accounting data (Chambers and
Odar. 2015). The approach of the auditors reflects significantly their contribution in mitigating
risks. Moreover, the detection procedure adopted by the auditors are crucially important since
there is variation in the way of financial assertion s depending upon the nature of financial
statements.

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2 (a)
The other aspect is the account balance based assertions that takes under consideration
the related aspects of ending balance in the accounts and hence is primarily related to that of the
balance sheets –
Completeness – It talks about reported assets, equity balances, liability, etc. and all other
balances that should get fully recorded.
Existence – This assertion takes under consideration the fact that all the balances regarding th
assets, equity and liabilities are been recorded.
Rights and Obligations – This incorporates the fact that the entities has all the rights to the assets
that are owned by it and in the same way the entities are obligated to the liabilities that is
reported in the financial statements (Martínez-Ferrero and García-Sánchez. 2018).
Valuation – The assertions relates to the fact that all the assets, liabilities and equities are being
measured and recorded at proper valuation.
The other aspect is the presentation and the disclosure assertions which are classified
with respect to the presentation of information within the financial statements and revealed
accompanying financial disclosures.
Accuracy – This assertion relates to the aspect that the disclosed information are
incorporated in correct amount as well as in appropriate values.
Completeness – The assertion relates to the fact that all the transactions are been
disclosed as required.
Understandability – The information that are been included within the financial
statements are appropriately presented and in an understandable manner.

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Rights and Obligations – The disclosed rights as well as obligations are related to the
entities that are reported.
2 (b)
Based on the identified risks and the key assertions it can be incorporated that the
following audit procedures will be best suited for the company. They are as follows:
Inspection
The process of inspection is related to vouchering the financial documents and
verification of them in substantial manner. Nearby 60 % of the audit work involves this process
followed by inspection of the documents where the auditors examine the sales invoices that
records the financial transactions and verify the financial estimation effectively. It is important to
assess that whether the invoices issued by the clients are actually based on the commodities that
are being received and on the same way this are the commodities that are being ordered by the
company itself (Knechel. 2016). The auditors may also prefer to examine the payment vouchers
that are approved by the authorities. The supporting documents may also be tested regarding
recording of the inventories and their movement during the year. This should be inclusive of the
documents relate to the purchase of the raw materials.
Recalculation
This procedure may be implemented because this audit procedure will be done based on
the re-performing of the works that are being done by the clients for the purpose of assessing that
if there exists any form of difference within the client’s work and the auditor’s work. As for
example like this case it is important to re-perform the calculations regarding depreciation and
ensure that the client’s assessment differs from that of the auditor’s calculation by what extent
(Pratt and Peters. 2017). This also may include the calculation regarding recalculation of

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monthly salary expenses that are being prepared by payroll and finance departments for ensuring
that the net salaries are paid to the employees in the correct amounts. The procedure of
recalculation that will help to confirm the accuracy in the financial transactions those which
involve critical calculations at large. The occurrence of sales revenue in the income statement for
the particular period will get effectively evaluated through this procedure in the present case.
2 (c)
The effective procedure of audit related to the full rationale of determination is a key in
conducting audit based on the auditing standards. The purpose of the ASA 701 is not only to
keep the auditing procedure abided by the auditing principles but also to ensure that the
equivalent international standards upon auditing is being implemented based on the strategic
requirements and legislative provisions. This auditing standards is being made in accordance
with the Australian equivalent if ISA 701 for communicating effective the matters related to
audit and execute it with the legislative environment of auditing based on certain salient features
(Ahmed and Anifowose, 2016). This includes:
 The key auditing matters (KAM) should be communicated mandatorily in the report of
the auditor based upon the listed entities
 The auditors of other entities should be allowed to decide whether they should include
KAM in their auditors reports
 The key audit matter or KAM should be determined by the auditors
 KAM included those matter that are communicated with the charges due to governance
or the auditing matter that required significant auditing attention

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 The areas where risks is being highly assessed should be carefully audited and interpreted
based upon the significance of the auditor’s judgments which may involve management
judgments and effects it carries upon the financial events or accounting transactions.
 The most significant matters that should be included in the auditor’s report should be
given more priority
 The process of describing the individual key audit matter by the auditors should be given
importance
 The circumstances in which the auditing matters that are determined by KAM are not
found to be communicated in the auditor’s report should be disallowed
 The requirements related to the documentation of the auditor’s report should be carefully
examined and incorporated to avoid any form of misinterpretation of miscommunication
of the financial statements and the auditor’s report that is being made upon them.
 The audit documents should be most importantly related to KAM
 In those matters, the auditor should incorporate its report through effective assessment of
the financial report of the company for the current period based on the professional
judgments made by the auditor.
Conclusion
Conclusion can be drawn with respect to the fact that the auditing procedure gets
effectively implemented when the transaction events are contributed significantly to mitigate the
risks associated with the auditing procedures and ensure effective assessment of the financial
health of the organizations. This reflects the true state of a company with respect to its financial
position towards its investors and other shareholders.

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