Auditing: A Practical Approach - Assignment Example

The auditor will have to test the inventory based on samples and is required to determine the design, size, and selection of samples from the population in which every item has an equal chance of selection (CAS301) The sampling techniques available for the auditor include value-weighted miseddomis selection through which inventory are selected random numbers simulator or generate systematic unit monetary selection; whereby the inventories are divided by sample size to give sampling interval, which forms a basis of selection of subsequent unitsMonetary unit sampling; through which the sampling units are selected on value weighted selection based on monetary amounts, and, Hap hazard selection auditor selects without following any systematic format.

Question 3 The auditor should consider the management’s estimation of uncertainty and adequacy of related disclosures (CAS 157). The procedures includeExamining how management has considered alternative assumption or findings and the reasons they were to adoptedThe auditor should considers the reasonableness of significant assumption adopted by management to write-off the cost of inventoryThe auditor should consider the appropriateness of the financial reporting framework used to write-off the cost of inventoryThe auditor should consider how management had accounted for the impairment in the financial statements by considering the recognition, measurement and disclosure principlesQuestion 4External confirmation from the supplier that the sale of goods has occurred and pertains to the entity (Ex CAS211)Recalculations of documents of inventory to ensure that transactions have been recordedInspecting documents used in the transaction to confirm that the amounts have been recorded appropriatelyThe auditor should inspect the goods purchased to verify existenceInquiring from the sales department on the date in which the purchase of the goods took place to ascertain the correct accounting periodQuestion 5The period covered by auditor’s review of subsequent events are the events between the date of the financial statements (date of last period covered by the financial reports) and the date of the auditor’s report (when they are made available to third parties) and facts after the auditor’s report (Ex CAS92).

The events that should be disclosed are the non-adjusting events that do not provide additional evidence of conditions that existed at the end of financial reports. Examples include a fall in the market value of investments and Dividends declared to shareholders after the date of financial reports events that should be adjusted are the adjusting events; they give additional evidence of conditions that existed at the financial reporting date. Examples include the determination after the end of the financial year of the cost of an asset purchased before the end of the reporting period the number of bonus payments where the company had a constructive obligation to make such payments outcome of a litigation process that confirms a contingent liabilityDiscovery of fraud or error in the financial statements question 6Assume you learn of a subsequent event after the date of the audit report (end of audit fieldwork) but before the audit, the report has been issued (Ex CAS 209).

The auditor has no obligation to perform any audit proceduresHowever, if it is an event that may have caused the auditor to amend his report, the auditor shallDiscuss the matter with management and those charged with governanceDetermine whether financial statements should be amendedInquire how management intends to address the mattersIf management amends financial statementsAuditor should carry out procedures on the amendmentsProvide a new report on the amended financial statementsIf management does not amend the financial statements but the auditor believes that there is need to amend thenIf audit report has not been provided, he should modify the opinionIf report has already been provided, notify management not to issue financial statements to third parties until necessary adjustments have been ,madeQuestion 7It necessary to compare unadjusted misstatement to other bases of materiality because it enables the auditor to select audit procedures that can be expected to reduce audit risk to lower levels (Ex CAS 118)What should the auditor do if the unadjusted misstatements exceed one or more materiality thresholds?i. Increasing the assessed risk of material misstatement including an extended additional test of controls.