Audit and Assurance in Australia

Questions: (1). Assume you are an auditor and are facing the following separate circumstances .All the following items are material .You can assume that management have refused to make any changes necessary to make the financial report true and fair so that the circumstances mentioned still exist. a. The value of the write off for the Allowance for Doubtful Debts is inadequate .Management are unwilling to adjust it although the amount leads to a material misstatement of Accounts Receivable. The amount of the misstatement is limited to the Receivables and is able to be calculated. b. A retailer provides a valuation for inventory at sales price less an allowance for sales margin. c. The Block company has just been advised that its main customer who purchases 45% of its stock has just gone into liquidation.Due to the specific nature of its products Block company is unlikely to find another customer of this size.Block has been starting to have difficulties in making sufficient sales to continue ope rating. d. The Croucher company has been valuing its buildings using the fair value method .Its buildings are currently shown in the balance sheet at their current market value of 18.5 million. The buildings had originally cost 12 million. e. The Kaycee company values its inventory at LIFO and is unwilling to change it to FIFO as required by the Australian accounting standards.The amount of the misstatement is known and is limited to its effect on the inventory . f. The Genome company has prepared its financial statements but has left out details of its related party disclosures due to privacy issues.This information is required to be included under the Australian accounting standards and while the effects are material they are able to be calculated. Required: For each of the above situations state the Audit Opinion that should be given with a brief reason/explanation related to each one . (2). The Office Two company sells various stationery and office equipment through its stores .It sells items both at its shopfront and through its internet order service .Orders accepted over the phone are delivered in the Sydney metropolitan area within one day . All sales are made for cash.The following are the procedures for sales. a. Customers in the store pay for their stationery giving the cash to a staff member at the desk .The staff member creates an Invoice and gives the customer a receipt on a copy of the Invoice . b. Customers who have ordered over the phone are given a sales order number by the staff member who prints two copies of the order.The staff member then collects the items from the store and arranges delivery of the order ,giving the goods and the invoice copies of the order to the driver. c. The driver delivers the goods to the customer collects the cash from the customer and receipts the customers copy of the invoice. d. The driver returns and hands over the cash and the second copy of the Invoice to a staff member in the store. e. At the end of each day each staff member gives all cash they taken to the Store Manager who locks it in the safe overnight. f. The next day the staff manager opens the safe and takes the cash to the bank alone . Required: Identify the weaknesses in the above procedures. Answers: (1). a. In this particular question, problem arises from writing off allowance for doubtful debts in inadequate manner. Management showed no interest in changing necessary adjustments for provision on bad debts in financial reports for the same (Whittington and Pany 2012). It is necessary to understand audit concept of the situation as far as possible. Company should conduct annual audit for reviewing accounts receivable in detailed analysis. Accounts receivable includes largest assets. Auditors need to change considerable amount of time for gaining assurance for future analysis purpose. Management needs to conduct audit activities for trace receivables in general ledger as well as calculating receivable reports. It investigates on reconciling items as well as testing invoices in receivable reports in the most appropriate way. It matches with shipping log and confirms with accounts receivable in reviewing cash receipts in an effective way (Whittington 2011). b. In this particular question, it requires addressing issues relating valuation of sales prices in allowance with sales margin for the same (Stuart 2012). Auditors have reviewed that revenue recognition poses issues in case of consignment sales, round-trip sales as well as refunding and returning the rights. Management are under pressures in misstating revenues in encouraging investors for impressing upper-level management as well as Board of Directors for the same. Auditors should solve the issues by conducting analytical procedures like running of financial ratio. It compares ways for setting industry benchmarks in the most appropriate way. In case of revenue cycle, auditors should examine gross profit margin as well as amount of growth in experiencing in one year in an effective way (Scott and Jacka 2011). It analyzes organization maximum capacity of sales and facilities of employees for full utilization for future analysis purpose. c. In this particular question, auditors need to solve issues of Block Company. It has gone into liquidation by main customers at 45% for the same (Reding 2011). Auditors need to conduct sales audit in the near future. Auditors need to take corrective actions on Block Company depending upon sales audit as far as possible. Sales audit is comprehensive as well as periodic interpretation of business environment and determination of areas in gaining opportunities in the most appropriate way. It recommends proper course of action as well as improving the sales performance of Block Company. Sales audit begins with aim in recruiting hiring procedures of sales staff members (Pflugarth 2011). It needs to complete record of personnel in relation with backgrounds, experience as well as method of selection of Block Company. d. In this particular question, auditors need to solve issues faced by Croucher Company for future analysis purpose. It is noticed that buildings are valued under fair value method that needs correction as far as possible. Fair value is used for financial reporting system as far as possible. It uses wide range of measuring financial instruments at fair value analysis (Louwers 2011). It calculates impairments in recording assets and liabilities for the same. It needs to assume for business combination in accordance with accounting standard. Account standard setters should continue in turning fair value realisation of in relevant measure of assets as well as liabilities in financial reporting measures in an overall manner (Scott and Jacka 2011). e. In this particular question, company shows unwillingness in changing deprecation method from LIFO method to FIFO method in the near future. It needs to use FIFO in accordance with Accounting Standard. Audit client needs to evaluate in the ending valuation for transferring amount for future analysis purpose (Leung 2011). It transfers amount from the balance sheet transactions for inventory account as well as income statement analysis in the most appropriate way. f. In this particular question, Genome Company had avoided details of party related disclosure that harms reputation of business organization on an adverse manner. It needs to be calculated as per AASB and FASB accounting for future analysis purpose (Kemp 2013). Auditor should involve in maintaining confidentiality of information for smooth functioning of business organization. (2). This particular company sells stationary as well as office equipment through its stores. It aims at selling shop front as well as through internet order services for the same. It identified certain weakness that company does not accept credit from the vendor (Hooks 2011). Credit transactions help in attracting vendor for smooth functioning of business organization. In this case, it is advisable that accountant is appointed for calculation of sales invoices using computerized system. Manual calculation is time-consuming and has the possibility of errors for the same. Customers are paying in cash at the purchase of stationary from the shop. It requires creation of sales invoices in computerised form for proper ways. In case of order given by phone, customers are given sales order number for verification purpose. It is advisable to evaluate print payment system and delivered the goods on timely manner (Hall and Hall 2011). Staff members should evaluate in giving proper attention of the sales invoice for future analysis purpose. It needs computerised way of handling work in the near future. In the next step, driver delivers the goods to the customers as well as collects cash from the customers. This particular company compares deposits for registering as well as invoice totals for the same. It exactly matches with auditing cash sales for a particular period. It solves issues relating cash-handling problems in business operations in an overall manner (Arens 2012). It examines deposits slips in case of cash and check totals in the most appropriate way. It matches sales figures for victim of lapping (Scott and Jacka 2011). Lapping is a case whereby employees remove check from register as well as is recorded in an effective way. It checks over the days sales in reporting for future analysis purpose. Employee places for checking register as well as removing an identical amount of cash. Sales totals match with deposit totals in losing money (Arens 2011). It records cash totals for indicating removing money in case of sales register. It revolves around comparison with inventory sales figures. It needs to examine customer orders. It includes accounts receivable for representing on customers purchases. It based upon credit transactions for invoicing customers. It needs to compare invoices for checking and receipts for the same. It checks sales invoice in examining deposit records in accounts receivable incomes. It helps in examining bills lading especially from stationary department (Whittington and Pany 2012). In case of cash transactions, it includes total outstanding accounts receivable. It includes any invoices from the viewpoint of customers in against outstanding accounts receivable. In this particular case, it needs to check on the store manager for collection of cash from the customers in the most appropriate way (Whittington and Pany 2012). It needs to check on the outstanding accounts receivable as well as total cash receipts in payment with credit cards. It represents total revenues for specified period. It includes total revenues equals gross sales for specified period for auditing reports. Auditor tests controls over company in sales cycle and determination of reliability actions discussed in the financial statements. Auditors need to select random sample of transactions for future analysis purpose (Scott and Jacka 2011). Auditor determines for financial statements for sales amount as well as accounts receivable for verification of individual transactions in an overall manner. Company uses audit for own procedures as well as transactions in ensuring controls in a strong manner (Whittington and Pany 2012). Internet audit depends upon employee fraud as well as designing control over process for future analysis purpose. Reference List Arens, A. (2011).Auditing, assurance services ethics in Australia. Frenchs Forest, N.S.W.: Pearson Australia. Arens, A. (2012).Auditing, assurance services and ethics in Australia. Frenchs Forest, N.S.W.: Pearson Australia. Hall, J. and Hall, J. (2011).Information technology auditing and assurance. Mason, Ohio: Thomson/South-Western. Hooks, K. (2011).Auditing and assurance services. Hoboken, NJ: Wiley. Kemp, S. (2013).Auditing, assurance and ethics handbook 2013. Milton, Qld: Wiley. Leung, P. (2011).Modern auditing assurance services. Milton, Qld.: John Wiley. Louwers, T. (2011).Auditing assurance services. New York: McGraw-Hill Irwin. Pflugarth, G. (2011).Auditing, assurance and ethics handbook 2011. [Frenchs Forest, N. S. W.]: Pearson Australia. Reding, K. (2011).Internal auditing. Altomonte Springs, Fla. Scott, P. and Jacka, J. (2011).Auditing social media. Hoboken, N.J.: Wiley. Stuart, I. (2012).Auditing and assurance services. Whittington, O. (2011).Principles of auditing other assurance services. [Place of publication not identified]: Irwin Mcgraw-Hill. Whittington, R. and Pany, K. (2012).Principles of auditing other assurance services. New York: McGraw-Hill Irwin.