ACC 707 Auditing and Assurance Services Individual Assignment
Question 1
While assessing the risk of material misstatement and determining the appropriate response
with regard to the inventory of Advanced Computer Solutions Limited (Advanced Computer
Solutions) for the 30 June 2018 audit, you become aware of the following information:
(i) The best-selling computer presentation package has been experiencing a high level of
returns owing to suspected software problems
(ii) Based on closing inventory, inventory turned over an average of 5.4 times in 2017 and 3.8
times in 2018
(iii) Advanced Computer Solutions moved its inventory from a central warehouse to six new
regional warehouses in March 2018
(iv) Inventory on hand at end of year represented 26 per cent of sales in 2018 and 18 per cent
of sales in 2017
(v) Advanced Computer Solutions has recently won a tender to supply a large government
department with various products. In order to win the tender and prevent competitors
from gaining a foothold in the public sector market, Computing Solutions agreed to supply
the items at 10 per cent below their cost price. The first shipment is due to be delivered to
the government department in the middle of July 2018.
REQUIRED
(a) Identify and explain the two key assertions at risk in relation to inventory
(b) Identify and describe two substantive audit procedures that you could perform in response
to each risk identified above
(c) Explain the requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s
Report and the rationale for this auditing standard. Determine if the above matters are key
audit matters, providing full rationale for the determination. If it is determined that they
are Key Audit Matters, provide the disclosures which are required in Key Audit Matters
Section of the Auditor’s report as required under ASA 701.
Question 2
You are the auditor of Green Machine Ltd, a manufacturer. You have obtained a summary of
the property, plant and equipment for the year ended 30 June 2018, which identifies cost and
accumulated depreciation brought forward, additions and disposals in the year and
depreciation charges.
A review of the management letter from the previous year’s audit shows that there were some
problems in relation to making a distinction between capital and revenue expenditure; some
items were capitalized when they should have been expensed and other capital items were
included in repairs and maintenance in the income statement.
Another risk identified from prior years relates to depreciation calculations: there is a range of
depreciation rates within categories and there has been concern that the rates applied to some
assets have been too low. The depreciation policy disclosed in the financial report shows:
• Building: 2 – 4% straight line
• Plant and machinery: 5 – 10% straight line
• Fixtures fittings and equipment: 5 – 20% straight line
REQUIRED
(a) Identify and explain the two key assertions at risk in relation to property, plant and
equipment
(b) Identify and describe two substantive audit procedures that you could perform in response
to each risk identified above
(c) Explain the requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s
Report and the rationale for this auditing standard. Determine if the above matters are key
audit matters, providing full rationale for the determination. If it is determined that they
are Key Audit Matters, provide the disclosures which are required in Key Audit Matters
Section of the Auditor’s report as required under ASA 701
Hint
Accounting & Finance"Misstatements in the financial statements summaries are viewed as material on the off chance that can impact the monetary choices of clients dependent on the fiscal summaries. This study introduces exact research, which gives proof that a pertinent desire hole with respect to the materiality of misquotes exists between clients of the budget summaries and auditors. The...
"Misstatements in the financial statements summaries are viewed as material on the off chance that can impact the monetary choices of clients dependent on the fiscal summaries.
This study introduces exact research, which gives proof that a pertinent desire hole with respect to the materiality of misquotes exists between clients of the budget summaries and auditors. These days, business is associated/connected. The back off in monetary improvement in created nations can lead the worldwide economy to subsidence. The impacts of deluding financial related data are colossal. "