Audit and Assurance: Inventory and Intellectual Property

This report focuses on audit and assurance, specifically addressing key assertions and risks related to inventory and intellectual property. It identifies and explains substantive audit procedures to mitigate identified risks, including valuation testing and tests of details for inventory, and analytical procedures and occurrence testing for rights and obligations. The report also explains the requirements of ASA 701, emphasizing the communication of key audit matters. The analysis includes a discussion of the valuation of inventory, rights and obligations, and the importance of intellectual property intangible assets, such as patents and trademarks. Substantive audit procedures for inventory valuation include valuation testing and test of details on balances, while for the rights and obligations of inventory the report suggests analytical procedures and occurrence testing. The report emphasizes the importance of proper documentation, fair value measurement, and the role of auditors in ensuring the accuracy of financial reporting, concluding with a discussion of ASA 701 requirements for communicating key audit matters.

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

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Executive Summary
This current report has focused on the process of identifying and explaining the key assertions on
the process of auditing along with the risk that relates to the inventory of the business. It
identifies and describes the substantive audit procedures which would help in mitigating the risk
that has been identified in the study. The ASA 701 has been explained which mainly deals with
the communicating the key audit matters in the provided report that is prepared by the appointed
of the company.

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Table of Contents
Introduction......................................................................................................................................3
Answer to question 1.......................................................................................................................3
Identifying and explaining two key assertions at risk in relation to inventory............................3
Identifying and describing two substantive audit procedures for response in each risk that are
identified......................................................................................................................................5
Substantive audit procedures for inventory valuation.................................................................5
Explaining the requirement of ASA 701 communicating the key audit matters along with
auditing standard..........................................................................................................................7
Answer to question 2.......................................................................................................................8
Identifying and explaining two key assertions at risk in relation to intellectual property
intangible assets...........................................................................................................................8
Identifying and describing two substantive audit procedure for response in each risk that are
identified......................................................................................................................................9
Explaining the requirement of ASA 701 communicating the key audit matters along with
auditing standard..........................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction
Audit and assurance are vital for an organisation, as it involves the process of checking
the financial statement that has already been designed by the management of the organisation.
The analysis of the accounting entries and the financial records mainly points out the verification
of the assessment procedure and operations of the business. In this study, different situations has
been provided where the key assertion of risk is to be identified that relates to inventory and the
intellectual property that are associated with the company. Moreover, the substantive audit
procedure has also been identified with the risk that has been identified along with discussing the
requirement of the ASA 701 that mainly deals with the communication in the key audit matters.
The financial report of the company assure the process of analysis of the records as per the
accounting standard that helps in overall improving the policies as well as a quality of the report.
Answer to question 1
Identifying and explaining two key assertions at risk in relation to inventory
The assessment of material misstatement is directly associated with the company that is
Computing Solutions Limited which has been the bestselling computer package that mainly
experiences the high level of returns from their inventory. The suspected software problem that
is associated with the business points out the effective return on inventory that would be
beneficial for the company in their normal course of business (Bryan, Rafferty and Wigan 2017).
Both of the inventory of the company that is opening inventory as well as the closing inventory
has decreased in the current years which points out the inefficiency of the inventory that are
associated with the company. It can be clearly seen that the company that is Computing
Solutions limited has their inventory turnover of an average of 5.2 times and around 3.8 times in
the financial year 2019 which has drastically reduced over the time period of one year. The

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company has also moved their inventory in the regional warehouse in the month of March 2019
(Farah and Tremolada 2015). The rate of inventory has increased in the assessment year rather
than in the financial year 2018. The two key assertion at risk in related to inventory are the
valuation of the inventory as well as the rights and obligations of the inventory.
Valuation of inventory mainly denoted as the total amount of cost that is required to be
included with inventory at the end of each financial year that points out the effective
measurement of the assets. It includes the cost of goods sold along with using the collateral
securities for a loan that are directly available with the inventory of the business (Hemphill
2014). The valuation of assets mainly points out the current assets of the company that is
available on the balance sheet of the company. The process of inventory valuation is mainly
based on the cost that points out the effective acquiring of the entity and the capability of
converting the assets into cash in their business. The cost that is incurred in the process of
valuation of inventory includes the direct labour, direct material, factory overhead, handling and
others (Botha, Von Solms and Adesemowo 2016). Computing Solution limited has faced a
decrease in their total amount of inventory at the end of the year mainly pointed by the under
valuation of assets that are required to be initiated with the help of a higher level of returns.
The other key assertion risk that are associated with inventory is the rights and obligation
of the inventory. The existence of these assertions is associated with the inventory of the
company which is mainly recognised in the statement of financial statement of the company
(Anatolievna Molodchik, Anatolievna Shakina and Barajas 2014). It includes all the inventory
that has already been recognised by the company in their balance sheet and is mainly held by the
third parties and it has been included in the balances of the inventory. The entity of the audit
mainly owns and controls the inventory that has been recognised by the company along with

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highlighting the inventory in the entity of the audit. The rights and obligation of the inventory is
directly associated with the right to ownership of the stock that is currently present in the
company (Trequattrini et al. 2016). It also includes with recognising the liabilities in the
financial statement that mainly represents the obligations of the entity and that has not been
recognised within the entity.
Identifying and describing two substantive audit procedures for response in each risk that
are identified
The substantive audit procedure for the response of risk that has been identified in the
above part has been pointed by the valuation testing and test of details of balances for inventory
valuation. The other risk that is rights and obligation of the inventory are analytical procedures
and occurrence testing.
Substantive audit procedures for inventory valuation
The fair value of the inventory is mainly developed by the management of the company
that provides professional judgement along with qualitative inputs. Understanding the
qualifications of the valuation is a type of challenge that is required to be initiated with the
collaborative efforts of the process of inventory valuation (Lauria et al. 2014). The impact of
financial reporting has increased with the employees that are associated with the organisation as
that are to be included with the quality of work which might vary with accounting entities. The
use of financial reporting has increased in the industries that is more subjective in the number of
variables and assumptions that are potential in nature along with measuring the performance of
the company. The process of documentation mainly points out the assumptions for the rationale
of the management along with arriving the fair value of inventory that are associated with the

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organisation. The procedures that are associated with the documentation along with the
assumptions of the management.
The valuation profession is to be identified by the effective valuation of assets that would
include the quality monitoring and establishing the overall quality code of ethics. The application
of the framework consist of underlying of assumptions that mainly measures the fair value of the
assets that are intangible assets (De Beer 2014). The valuation testing is to be implemented for
measuring the assets and the inventories that are associated with in the company. Determining
the value of inventory is one of the major procedure by which the company measures their total
amount of inventory that are associated with the company. On the other hand, test details on
balances of inventory is another audit procedure that helps in measuring the overall valuation of
inventory of the company (Andrii 2015). The cost of design is also associated with the business
which points out the negative impact on the share price of the company along with harming the
relationship with the customers. This particular process mainly evaluates the inventory that
comes at first and then the other inventory which comes after the first inventory in the company.
In the case of rights and obligation of business, analytical procedures has been considered
which mainly points out the differentiation of the gross margin within the early years and the
conversion of inventory turnover ratio withy the turnover ratio from the previous year (Chaisse
and Nagaraj 2014). Goss margin is the amount that is associated with the business along with
highlighting the nature of the business. Comparing the gross margin of two consecutive years
helps the company to point out the effective valuation of the inventory that are available within
the company. Moreover, the inventory turnover ratio has the tendency to highlight the nature of
the inventory which help the company to increase their overall profitability of business. On the
other hand, occurrence testing is also implemented in the business of evaluating the audit

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procedure on the inventory. The process of occurrence testing mainly assist in determining the
transactions that are directly associated with the business along with pointing out the claiming
the inventory that has actually occurred in the business (Kogan et al. 2014). It also shows the
clients about the involvement of transactions that are included with the business along with
mentioning the effective nature of the procedure of testing.
Explaining the requirement of ASA 701 communicating the key audit matters along with
auditing standard
The requirement of ASA 701 communicating the key audit matters has the effective
mode of communication that is directly associated with the government and the matters are to be
considered by the appointed auditors. The required significant auditors is to be performed their
duties and certain areas are to be considered by the auditors in their overall process of auditing
(Jans, Alles and Vasarhelyi 2014). The areas that consist of high risk of material misstatement
along with certain significant risk are to be identified with the requirement of ASA 315. The
judgement of the significant auditors includes the areas of financial reporting and the estimating
in the process of accounting is also to be included for having uncertainty in the process of
estimation (Peters and Romi 2014). The effect of the auditors includes the effective transactions
that would be beneficial for the company that has generally occurred during the transactions in
the time period. Determining the matters as per the auditing standard is to be initiated by the
effective process of auditing the statement of the organisation (Glover, Prawitt and Drake 2014).
The substantive audit procedure along with the risk that has been mentioned above determines
that they are key audit matters and the disclosure has been provided in the report that is prepared
by the auditors as per the requirement of the auditing standard ASA 701.

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Answer to question 2
Identifying and explaining two key assertions at risk in relation to intellectual property
intangible assets
Intellectual property intangible assets is the range of diverse assets which includes the
legally protected rights that helps in cooperation of the intangible assets that are included with
the company. Certain intangible assets that might be at risk consist of patents, copyrights,
trademarks and others. In the knowledge based economy in recent years, the company that is
Beautiful Hair limited consist of intellectual property intangible assets have both economic as
well as strategic importance (Appelbaum, Kogan and Vasarhelyi 2017). The traditional risk of
the intellectual property includes the legal cost that helps in protecting the rights of intellectual
property. The diminishing value of the intangible assets might results in legal findings of the
invalidity and face certain challenges in the overall process of ownership.
Moreover, the assets that are intangible in nature generally provides long term benefits to
the company such as goodwill which helps the company in gaining income and revenue from the
business. The company consist of line of products that mainly fits in the business of the company
along with funding the acquisition from the Regional bank (Van Buuren et al. 2014). The other
risk that are included with the business of Beautiful Hair limited is the infringement of liability
that includes the legal cost along with damaged cost which mainly results in the overall process
of settlement. The cost of design is also associated with the business which points out the
negative impact on the share price of the company along with harming the relationship with the
customers.

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Identifying and describing two substantive audit procedure for response in each risk that
are identified
The substantive procedure of auditing of the extensive matter for betterment of the
company along with maintaining the responses are controlling the interest expenses and accuracy
with documentation. Beautiful Hair limited consist of different kind of internal controls which
are directly related to the expenses along with requiring certain level of expenses that would be
paid by the company in their business activities (Christensen, Elder and Glover 2014). The first
step of auditing is to evaluate the overall expenses that includes the internal control which points
out the effective notation on the recommended changes in their business. Finding the loopholes
and control allows the employees for paying the expenses. The process of timely expenses is
received by the expenses that is associated with the something that is to be occurred in the
business.
Random selection of invoices in the original paper work includes verifying of the
invoices and the signatures of the managers. Certain documentation is to be included with the
documentation procedure that points out the comparison of the process of employee retaining
which is to be completed with prior to payment to employees (Iatridis and Kesidou 2018). The
final procedure of checking the documents mainly exists in the real business and points out the
fraudulent transactions that mainly occurs in the business transactions. The appointed employee
of the company has the potential of summing up the bills that involves the effective request for
payments.

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Explaining the requirement of ASA 701 communicating the key audit matters along with
auditing standard
The requirement of ASA 701 communicating the key audit matters mainly points out the
appointed auditors of the company that includes the effective audit reports by pointing out the
key audit matters (Junior, Best and Cotter 2014). The appointed auditor of the company
describes the audit matters which points out the headings in the report of auditing under the
heading of “Key Audit Matters”, for maintaining the circumstances. The section of the auditing
standard state the key audit matters along with professional judgement of the auditor which is
one of the most significant places for presenting the financial report. The context of audit in the
financial matters provides opinion on the matters that includes the communication with the
management which is to be modified in their effective business requirement (Farooq and De
Villiers 2017). The substantive audit procedure along with the risk that has been mentioned
above determines that they are key audit matters and the disclosure has been provided in the
report that is prepared by the auditors as per the requirement of the auditing standard ASA 701.
Conclusion
The concluding statement of the report highlights the procedure of audit and assurance is
associated with the company that points out the effective auditing standard along with risk of
auditing. The process of auditing mainly points out the misrepresentation of the financial records
that have already been done by the company. The valuation of assets mainly points out the
current assets of the company that is available on the balance sheet of the company. The entity of
the audit mainly owns and controls the inventory that has been recognised by the company along
with highlighting the inventory in the entity of the audit. The use of financial reporting has
increased in the industries that is more subjective in the number of variables and assumptions

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that are potential in nature along with measuring the performance of the company. Comparing
the gross margin of two consecutive years helps the company to point out the effective valuation
of the inventory that are available within the company. The requirement of the auditing standard
has also pointed by the key audit matters in overall business operation.

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References
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Andrii, V., 2015. The essence of intangible service as a special theoretical category in the
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De Beer, E., 2014. Creating value through communication. Public Relations Review, 40(2),
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Farah, P.D. and Tremolada, R., 2015. Conflict between intellectual property rights and human
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